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Palestinian Stock ExchangeHas Potential to Grow

Despite worsening economic conditions due to the political climate, there are several positive indicators for the Palestinian Stock Exchange.
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The Palestinian Capital Market Authority is increasing its efforts to protect the most important Palestinian economic bodies — such as the Palestine Stock Exchange — which have been negatively impacted by a lack of investment awareness, the internal political schism between Fatah and Hamas, and the ongoing Israeli economic siege, now entering its seventh consecutive year. 

All this has prompted a flight of local capital to other Arab and international stock markets. No sooner does one enter the trading floor in a Palestinian brokerage firm than does one feel that a stillness has come over the commotion of stock trading.

In one of the largest Palestinian brokerage firms, trading rooms are divided among a number of different stock exchanges, according to the level of investor demand.

The pre-opening bell rings, then the opening bell, but the Palestinian traders did not attend the trading session. At the same time, cries welled up and investors’ glances grew fierce at the fluctuations of stock prices in the neighboring hall, which had been reserved for trading on the Egyptian and Dubai stock exchanges.

When Al-Monitor asked an investor named Omar Abu Rahmah about the situation of the Palestinian stock market, he simply recited the Fatiha (a Quranic verse often recited over the dead) and added, “The Palestinian stock exchange is dead because of the poor economic situation. It has caused a significant drop in stock prices.”

Another investor, Jamil Haboub, told Al-Monitor that he sold his stocks on the Palestinian exchange and turned to the Egyptian and Dubai exchanges, after an Israeli economic blockade was imposed on the Gaza Strip in 2007.

Haboub noted during a follow-up interview during a trading session of the brokerage that “this hall was (once) filled with 100 investors, but today there are no more than 15.”

Meanwhile, investor Abu Mahmoud expressed deep regret upon entering the Egyptian and Emirati markets; he told Al-Monitor that “the Palestinian stock market is much better than the Egyptian and Dubai exchanges; there is more stability in prices.”

Sulayman Al Ridwan, the deputy director of a brokerage firm, believes that the main reason for the reluctance of these investors to trade on the Palestinian stock exchange is the desire for quicker and larger profits.

Ridwan went on, saying, “The Palestinian market is characterized by steadiness and stability. This does not suit those speculators who are looking to take risks in order to make rapid profits, but it is more stable for the investor over the long term.”

He noted that price volatility in the Palestinian stock market reaches 7.5% for first-market companies (i.e., larger, more highly capitalized companies), 5% for second-market companies, and 20% in other Arab stock exchanges, and therein lies the risk.

Hamdi Za’rab, a financial analyst specializing in the Palestinian Stock Exchange interviewed by Al-Monitor, said, “Rising price volatility increases companies’ capital and encourages investment in the stock market.”

The Capital Market Authority also divided the stock market at the beginning of the year into a “first” market and a “second” market.

According to experts, this comes in the context of growing competence and organization in the market, as more robust, larger companies enter the first market, while relatively smaller firms are listed in the second market.

According to data from the Palestinian Stock Market, 17 companies out of 48 were registered in the first market.

On the other hand, the percentage of investment in bank deposits in exchange for annual interest return on investments in the Palestinian stock exchange has risen.

Sayf al-Din Awdah, an official of a group for monetary policy and financial markets in the Palestinian Monetary Authority (the Central Bank), said this is a matter of course in developing states, where the banking sector is the main artery of financing.

In his interview with Al-Monitor, Awdah noted the reasons for the decline in the Palestinian stock market, saying, “It can be attributed to the novelty of financial markets, the absence of a well-established investment culture and the dominance of a culture fearful of investing in stock exchanges." 

Awdah further explained that investors generally take refuge in bank deposits that do not require a highly developed investor culture and are generally lower-risk. 

According to the Palestinian Monetary Authority, the total value of deposits residing in Palestinian banks as of April 2013 is nearly $6 billion, including nearly $4 billion in interest-earning accounts. 

At the same time, in an indication of the greater tendency among Palestinians toward saving in banks over investing the stock market, the market value of companies listed on the Palestine Stock Exchange is only $3 billion as of May 2013.

In his interview with Al-Monitor, Awdah rebutted claims that the Palestinian stock market was weak, saying, “The Palestinian stock exchange was able to achieve great things in a short period of time, in comparison to other Arab stock markets that have been operating in (more) stable countries for a longer period of time.”

Awdah stressed that the Palestinian stock market was a success, given the difficult political conditions it faced, stating that “the Palestinian stock market is the first Arab stock exchange that is completely automated, the first stock exchange to be completely owned by the private sector, and the second Arab stock exchange after Dubai to list its shares openly.”

Adwah said that there was a consensus among Palestinian experts that the Palestinian Stock Market was among the least harmed by the global financial crisis of 2008. 

Hana Salah is a Palestinian financial journalist based in Gaza, and has previously worked with Palestinian newspapers and Turkey's Anadolu News Agency.

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