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Aweidah: The PEX is under the mercy of the financial crisis, the new tax law and clogged political horizon

2012-07-23

Unlike previous times in which were linked to global crises and other external factors, the extreme vulnerability of Palestine Stock Exchange for months is 100% due to domestic reasons, as the CEO Ahmad Awaidah reported. Trading value declined from $1.2 billion in 2008 to $500 million in 2009, $450 million in 2010, to $360 million in 2011. Awaidah said, "We"ll be lucky if the trading value reached $300 million this year." 

He added, in an interview with journalists: "the largest decline in 2008-2009 was linked primarily to the global financial crisis, followed by Israel"s war on Gaza in late 2009, and then the failed merger deal between Palestine Telecommunications and Kuwati Zain and the parallel trading halting on PALTEL’s share for 8 months which is the most influential share in the market, and then the financial crisis in Dubai.

The CEO of Palestine Stock Exchange PEX; Mr. Ahmad Awaidah said: “Unlike previous years, the decline in the PEX’s trading volume this year comes from 100% domestic reasons, where the Palestinian National Authority lives in the most difficult financial crisis that resulted in the amended income tax law that subjected a portion of the capital gains from trading stocks to income tax to the contrary of other regional countries’’. Awaidah drew that there is a great concern by the private sector of losing Palestine investment attractiveness due to getting lost in the economic policy and the clogged political horizon. He indicated: “The only comfort we have is that the picture we have is no different than other markets in the region, perhaps the situation is worst in some markets such as Amman Stock Exchange”. Awaidah predicted a significant decline in the corporate profits this year due to the new income tax Act and postponement of taking advantage of investment promotion incentives, as well as the strengthening of the dollar, as most corporate earnings are in Israel Shekel, while have dollar obligations. He reported: "The effects of these factors will be evident in the companies" results for the first half of the year". “There are no magic solutions” said Aweidah, adding, "What can be done now is to increase the supply and demand through listing new companies. There are efforts to transform family companies into public shareholding companies, and I believe that there is at least one company is on its way to be transformed".

Palestine Securities Exchange management is seeking to develop non-operating income from sources to compensate for the decline in revenues that comes from trading operations; the goal of this revenue (non-operational) is to cover 70% of operating expenses. In 2008, PEX achieved $5.5 million revenues from trading operations, declined in 2011 to $1.4 million; Awaidah expects not to reach $1 million for this year. PSE Company realized a loss of $298 thousand in the first half of this year, compared with a profit of approximately $91 in the first half of the last year. Awaidah reported: for the first time, the PSE realized an operating loss. This is not caused by an increase in expenses; they are stable for almost four years, despite the expansion of investment in technology and other investments. The basic cause for the loss is the decline in trading commissions. He added, “Over a year ago we focus on other sources of income, such as the return on the loan to the parent company PADICO holding, leasing revenues from part of the stock exchange headquarter in Ramallah, and CDS returns that are being transferred to the settlement agent. Also, the membership of national payment system in the Monetary Authority would allow the CDS to provide other services to investors beside to the revenue from membership fees for brokerage firms, and the listing of the listed companies, and corporate sponsors for the activities of PEX.

According to Aweidah, the income from these sources now covers 50% of the operating expenses of PSE, and the strategic goal is to cover 70% of the expenses. Some investors felt that trading volumes decline is due partly to the increase in the trading commission (0.00045), while it"s not exceeding quarter of this value in other regional countries. Awaidah reported "we will discuss this issue when our trading volumes reach such other markets’, the commission reduction is not an option now; all brokerage firms are realizing losses, one closed due to bankruptcy. Also, many foreign companies operating in Palestine, as banks, are achieving significant profits from the Palestinian market, so why not to be listed in PEX?. In this context, he said:  efforts took place, particularly for joint Jordanian companies operating in Palestine, but the basic problem lies in the double taxation between Palestine and Jordan, the Ministry of Finance refused to give these companies exemptions for the purpose of the common listing. He added: we got to despair with the Ministry of finance.

 

 

 


 

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