Global Investors Target the Palestine Stock Exchange in 2014

Both prices and trading volumes on the Palestine Stock Exchange (PEX) have scored impressive gains since the start of this year, thanks largely to investors from the Palestinian diaspora and Arab Gulf states. Recent decisions by such respected ratings agencies as Standard & Poor’s, Dow Jones and MSCI to include Palestine in their indices, as well as plans by London’s FTSE to follow suit, are now attracting other global investors from the UK, Europe, the US, Canada, Chile and elsewhere to the Exchange and to its leading companies, such as PADICO Holding, PalTel and the Bank of Palestine, analysts report.

Expectations that these moves will be followed by PEX’s inclusion in the global ‘Frontier Market’ indices is already fuelling demand from institutional investors, the analysts add. Its multi-currency platform, allowing trading in both US dollars and Jordanian dinars, as well as Palestine’s lack of capital controls, is also encouraging international interest. Trading volumes in January were more than two-fold higher than in December, and nearly four times as high as in January, 2013.

PEX’s CEO, Ahmad Aweidah, expects 2014 to be a “threshold year.” Photo: Mark Green, mark@nwmsltd.com.

The Exchange’s Al Quds index broke through the 600 barrier in early February before falling back slightly on profit taking. It had risen 10.55 per cent in January alone, making it the second best performing stock market in the Arab world so far this year. Last year, the index registered an annual gain of 13.4 per cent, according to figures compiled by Ramallah-based brokers Sahem Investment and Trading. By the middle of February, the Exchange’s total market capitalisation had reached more than $3.5 billion.

Palestine’s Stock Exchange is ahead of most other Arab markets. Graph: Sahem Trading & Investment.

This year could be a “threshold year,” the Exchange’s CEO, Ahmad Aweidah, told InvestPalestine.com. Speaking during a visit to London in mid-January to mark Palestine Capital Markets Day, he said “We are now achieving a series of important economic breakthroughs that could see our growth accelerate even more strongly.

He and other members of the Palestinian delegation, which included senior executives from PalTrade, PalTel, the Palestine Investment Fund (PIF), PADICO Holding, the Bank of Palestine, Sahem Trading & Investment and Lotus for Financial Investment, as well as Abeer Odeh, CEO of the Palestine Capital Market Authority, were hosted on the last evening of their visit to London by Baroness Morris of Bolton, UK Prime Minister David Cameron’sTrade Envoy for the Palestinian Territories, at a reception in Westminster organised by the Palestine British Business Council and its co-chairman, Antoine Mattar.

The Palestine Delegation to Palestine Capital Markets Day in London, 17 January, 2014. From left to right: Fida Musleh-Azar, PEX Manager of Public Relations & Investor Education; PEX CEO Ahmad Aweidah; Ammar Aker, CEO, PalTel; John Davies, Vice-President, S&P Dow Jones Indices. Photo: Mark Green.

Financial services, banking, ICT, infrastructure and high value agriculture, as well as tourism (including such world renowned attractions as Bethlehem, the Dead Sea and Jericho) were making strong progress, Aweidah told an audience of existing and potential investors. And, although economic growth has slowed recently as local entrepreneurs and international donors await firm progress on US Secretary of State John Kerry’s ‘peace initiative,’ Palestine’s GDP has grown by a remarkable 8.4 per cent a year on average during the past five years, he noted.

“The Palestine economy continues to demonstrate exceptional endurance despite political challenges,” Aweidah explained, a performance he attributed to the “strong and vibrant private sector,” its “well regulated and sophisticated financial system,” its “modern capital market,” and “advanced investor protection regime.” The majority of the 49 stocks on the Exchange, he pointed out, also “enjoy free float ratios that are comparable to advanced markets” as well as “reassuring turnover ratios.”

Foreign investors, both individual and institutional, are helping to boost both values and volumes on the Palestine Stock Exchange. Graph: PEX, Ministry of National Economy.

At the end of 2013, foreign investment in PEX amounted to just over 40 per cent of the total value of its shares, or about 34 per cent by volume. Investors from Jordan, many of whom are Palestinians with Jordanian citizenship, accounted for the majority of the foreign shareholders, 61.4 per cent, followed by others from the Americas at 10.9 per cent, the Arab Gulf with 6.6 per cent and Europe with 2.5 per cent. Palestinians made up 95 per cent of the total number of investors, demonstrating the widespread appetite for shares among smaller shareholders living both inside and outside Palestine.

Speaking to potential investors in London and to InvestPalestine.com, John Davies, Vice President at S&P Dow Jones Indices, explained why his firm, which now includes both the respected ratings agencies, Standard & Poor’s and Dow Jones, had established two stand-alone indices for Palestine last December. “We don’t build indices simply because we feel they are needed,” he insisted. “We build them because our clients are asking for them. The establishment [of the new indices] is evidence that there is significant demand for investment in Palestine.”

John Davies, Vice President at S&P Dow Jones Indices, explaining PEX’s attractions to an audience of investors in London, 17 January, 2014. Photo: Mark Green.

The two new additions are the S&P Palestine Broad Market Index (BMI), which aims to capture at least 80 per cent of PEX’s market capitalisation, and the Dow Jones Palestine Total Stock Market Index (TSM), which aims for 95 per cent of the Exchange’s float-adjusted market capitalisation, Davies explained. Since testing began in September 2012, he added, the stand alone BMI index had achieved a 41 per cent cumulative annual return, a figure which compares favourably with the Pan-Arab Composition Index at 24.5 per cent and the S&P Composition Index at about 30.2 per cent.

Despite general skepticism about the progress of Kerry’s peace talks, investors are more confident that he will succeed in brokering a deal, the news agency, Bloomberg, quoted Aweidah as saying in mid-January. “If there’s a framework agreement, it’ll be a game changer” for the Exchange. There’s certainly a lot of optimism in the market about the direction of the political negotiations…. The time to invest in Palestinian stocks is now.”

Processing premium quality Medjool dates at a Palestinian-owned factory in the Jordan Valley. The possibility of greater access to the fertile soil and water of the Israeli-occupied parts of the Valley and “Area C” as a result of the current negotiations between Israel and the Palestinian Authority is a major factor in encouraging both local and foreign entrepreneurs to invest in the West Bank. Photo: fablenaturals.com.

Success in the talks would, according to a recent study by the International Monetary Fund, boost economic growth in the Territories by 35 per cent over the next five and a half years, or about 6.5% a year on average, compared with 1.5 per cent in 2013. This includes Palestinians gaining control of the land, water and resources in Area C, which forms almost two-thirds of the West Bank, which is currently under Israeli military occupation. The IMF adds that an agreement would significantly reduce the Palestinian Authority’s dependence on foreign aid, greatly enhance employment and lower poverty levels. Local entrepreneurs are investing in modern factories, like this one outside Hebron. Photo: Palden Jenkins, paldywan.blogspot.co.uk.

Business confidence in the West Bank is also rising, according to Palestinian analysts, because of higher optimism among entrepreneurs and in the industrial sector, especially in food, textiles, chemical, pharmaceutical, engineering, plastics and construction. The Palestinian Monetary Authority reported in mid-February that its monthly index, the PMA Business Cycle Indicator, had risen from minus 1.44 in the West Bank in January to a positive 8.25 in February. Negative business sentiment in the Gaza Strip also improved, as industrialists reportedly felt more optimistic about the continuous US efforts to stimulate the peace process between Palestinians and Israelis and less fearful of a continuing deterioration in security conditions. The northern West Bank city of Jenin is to be the site of a vital new power plant due to be built by a Palestinian company. Photo: Palden Jenkins, paldywan.blogspot.co.uk.

If an accord is agreed, Aweidah revealed, as many as four family-owned businesses in Palestine may also opt to sell shares on the Exchange through initial public offerings (IPO’s). The Palestine Power Generating Company (PPGC), he added, could follow suit.

PPGC is planning to build a $300 million power plant in Jenin in the West Bank which will be fuelled by gas from the giant offshore Leviathan field in the Mediterranean under a $1.2 billion, 20-year deal agreed in January. PPGC’s leading shareholders include the Palestine Electric Company, the builders of Palestine’s first independent power plant, and the industrial conglomerate, PADICO, both of which are quoted on the PEX.

© Pamela Ann Smith

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Changing Fortunes for Palestine’s Economy?

InvestPalestine.com was busy in June preparing a Special Report which has now appeared in the July issue of the London-based, pan-Arab monthly, The Middle East.

Here’s a preview:

Critical Times for Palestine’s Economy

The hopes and aspirations of millions of young Palestinians, both in the occupied territories and in the refugee camps of Lebanon, Jordan, Syria and elsewhere, as well as those of their older relatives and families both at home and in the Diaspora, could well be at stake in the coming weeks as US Secretary of State John Kerry seeks to convince Israel, as well as the Palestinian Authority, to return to the negotiating table and finally agree to accept the need for a sovereign Palestinian state.

Will there be peace for the next generation? Photo: Eva Bartlett, http://ingaza.wordpress.com.

While many in the West Bank, Gaza and East Jerusalem, as elsewhere, are justifiably extremely skeptical about Kerry’s plans to restart the moribund “peace talks,” Palestine’s business leaders, along with some of Israel’s most progressive entrepreneurs, have welcomed his initiative, as have future leaders like the imprisoned Marwan Barghouthi, seeing it as the only way to end the decades-old conflict and ensure a viable future for the next generation.

Gaza: Dubai on the Mediterranean?

To most people around the world, the word ‘Gaza’ conjures up images of rockets and bombs, wars, poverty and invasion, never mind the appalling conditions in which many of its residents live as a result of the ongoing Israeli blockade. But, as one international commentator suggested recently, it’s not, actually, too fanciful to see it in the future as the Mediterranean’s “Dubai.” While of course that assumes that peace prevails and that the Israeli siege ends, it also recalls Gaza’s historic role as a prosperous gateway between Africa and Asia, Europe and the Middle East.

Gaza's five-star Al Mashtal Hotel on the beach front shows the potential for luxury tourism to appeal to visitors from Europe, Asia and Africa. Photo: Christopher Furlong, AFP/Getty.

Developing East Jerusalem?

Efforts to help the beleaguered 375,000 inhabitants of Israeli-occupied East Jerusalem – which Palestinians see as the future capital of their state – are intensifying because of renewed efforts by Palestinian businessmen and promises of some $1 billion in aid from the Arab League, of which $250 million has already been pledged by Qatar. The plans include the construction of a new airport in the city, a project which was first mooted in 2009 by the former Palestinian Prime Minister, Salah Fayyad, as well as incentives to both local and foreign investors in the fields of finance, trade, transport, tourism, real estate and housing, private education and information communications and technology (ICT).

The articles will be published in full here at the end of July.

Meanwhile, check out http://www.themiddleastmagazine.com, or get the printed edition at your local news agent or newstand.

As always, thanks for reading!

Pam

Hopes Rise for Palestinian Economy

Hopes are rising that 2013 will see a significant improvement in Palestine’s economy after the disappointments of last year. US Secretary of State John Kerry’s pledge to find new ways to promote development in the West Bank, Gaza and East Jerusalem is, despite widespread scepticism, also furthering this optimism, not least because he has recognised that this must go hand-in-hand with promoting a sovereign Palestinian state.

Palestine’s Minister of Economy, Jawad Naji Awad Hirzallah, told the Arab media in April, after US President Barack Obama’s visit to Tel Aviv, Jerusalem and Ramallah in March, that “We expect the growth rate in 2013 to be 5 to 6 percent. Against a backdrop of negative economic conditions,” he added, “ this is a good indication of growth.” Last year, Palestine’s services sector, including retail trade and tourism, grew by a remarkable 13.2 per cent, while construction was up 6.5 per cent and information and communications (ICT) 5.9 per cent.

Not everyone, like this couple in Ramallah, can afford a BMW, but there is a hunger for the luxuries of modern life. Photo: Reuters.

East Jerusalem: Promoting Private & Foreign Investment

While the focus of the international community’s aid to Palestine in the past few years has been concentrated on increasing the sustainability of its political institutions, the economic needs of Palestinians have often taken second place, not least because of the Israeli restrictions on movement and trade and the lack of a coherent economic development policy. The people of East Jerusalem are among those who have been affected the most, having been cut off by Israel’s ‘separation barrier’ from their natural hinterland in the West Bank and squeezed in by Israeli checkpoints such as the one at Qalandiya, which divides Ramallah from Jerusalem.

A view of East Jerusalem, looking toward the Damascus Gate to the Old City. Photo: Liz Tagami.

(Click on the image to see an impressive overview of the ‘Old City’.)

Now a group of Palestinian companies are organising a “Jerusalem Business Forum” to address the growing economic stagnation and rising poverty in the Arab section of the city which has been annexed by Israel against international law and which Palestinians see as the future capital of an independent state. Due to take place in mid-December, it aims to encourage private and foreign investment in the local economy by concentrating on East Jerusalem’s untapped potential, as well as the city’s unique social and cultural heritage which continues to attract some 1.5 million tourists a year.

Real Estate and Construction: The Unmet Potential

Back in 2010, when the Palestinian economy was growing at more than 9 per cent a year, the country’s construction industry began to boom, and while it has fallen off dramatically in the West Bank since then, it is still growing in Gaza. New real estate developments, especially in and around the administrative capital of Ramallah in the West Bank, as well as projects to build modern shopping malls, office buildings and housing in Gaza have taken off.

The UN’s Secretary-General Ban Ki-moon and Palestinian Prime Minister, Salam Fayyad, surveying prime Palestinian land in ‘Area C’, near Ramallah, which is currently under Israeli military control. Its development could help spur further growth in the Palestinian economy and create thousands of much-needed jobs in construction. Photo: UN.

The planned new city of Rawabi, launched by the Bayti Real Estate Investment Company —- a joint venture between Qatari Diar and Ramallah-based Massar International —- was a model that caught the attention of the international press. Costing some $850 million, it will feature gleaming high-rise buildings set on a scenic wooded hilltop. More than 5,000 affordable housing units will be included, spread across 23 neighourhoods, along with green parks, a hotel and convention centre, a business district and shopping areas.

Alas, the project, like so many others in the Occupied Territories is way behind schedule, due to Israeli restrictions that have hindered the construction of a permanent new access road needed to carry tons of building materials to the site.

An artist’s view of the new city of Rawabi which is under construction near Ramallah. Photo: Al Bayti.

PalTrade Launches Drive to Diversify Trade & Exports

The Palestine Trade Center (PalTrade), together with the Ministry of Economy in Ramallah, has announced a series of measures to promote Palestinian exports to the Arab countries, Europe and other international markets, including special programmes aimed at small- and medium-sized enterprises (SMEs) in the West Bank and Gaza. They are being launched as more and more countries, following the lead of the UK, the European Union and South Africa, are refusing to accept imports labelled ‘Made in Israel,’ which, in fact, come from Israeli settlements in the occupied territories rather than from Israel itself.

The measures announced by PalTrade — a national, non-profit organisation based in Al Bireh in the West Bank — include a new trade diversification programme funded by the EU which is also being supported by the Palestinian Shippers Council. In addition to encouraging alternative trade corridors to, and through, Jordan and the nearby Arab countries, the €3 million programme sets up a ‘National Export Strategy’ to improve Palestine’s international competitiveness as well as special measures to develop Palestine’s trade in services.

Medjool dates and Palestinian fruits and vegetables from the Jordan Valley are prized throughout the Arab world. Picture courtesy of PalTrade.

Jordan and the Arab Gulf states are being targetted by PalTrade and the new Jericho Agro-Industrial Park. Picture courtesy of PalTrade.

“A comprehensive package will be implemented to support the private sector in reaching new markets and developing marketing strategies,” the EU’s chief representative, John Gatt-Rutter, said at the official launch in Ramallah’s Movenpick Hotel on 27 February.
However, he also noted that its success depended on Israel complying with its international obligations to remove the existing barriers to the free movement of people, goods and services in the territories. “For this project to fully deliver its results…Israel has a major responsibility for ensuring access and movement and facilitating Palestinian trade,” he told his audience, which included Prime Minister Salah Fayyad, PalTrade’s CEO, Hanan Taha, and Maha Abu Shoshah, Chairman of the Shippers Council.

Last September, the European Parliament in Strassbourg approved a new trade agreement with the West Bank, Gaza and East Jerusalem which allows EU members states to import agricultural products, including fish, directly, i.e. without going through Israel. “This is one of the most generous trade agreements in the agricultural sector signed by the EU,” the European Commissioner for Agriculture and Rural Development, Dacian Ciolos, said at the time. “I want to be clear,” he added, that the European Commission is working to ensure that the EU does not buy any products from Israeli colonies in the occupied Palestinian territories.”

UK Targets Palestinian ICT & Telecoms

The UK government, along with a growing list of international ICT giants such as Google, Microsoft, Cisco and Intel, is the latest to recognise Palestine’s huge potential in information communications and technology given its highly talented younger generation, which is fluent in English and Arabic, as well as in entrepreneurial and engineering skills.   Britain’s Minister for Culture, Communications and Creative Industries, Ed Vaisey, says that his government hopes to get Palestinian and UK businesses “to work together,” and that it will actively seek to encourage British companies to “come and start business in Palestine.”

He was commenting during a visit to Ramallah in March that also included a tour of the headquarters of Palestine’s telecommunications corporation, PalTel, which, with its subsidiaries Jawwal and Hadara, provides the majority of Internet, landline and mobile services in the West Bank and Gaza.  PalTel, which is a favourite of international investors on the Palestine Securities Exchange, reported a 5.1 per cent increase in profits last year, to $128 million, despite the difficulties of the Israeli occupation in the West Bank, Gaza and East Jerusalem.  Thanks to an intensive expansion programme, it has now extended its services to the Jordan Valley region, and is planning to invest an additional $70 million to $80 million by the end of this year in new fibre optic and mobile phone infrastructure, primarily for the Internet.

PalTel’s CEO, Ammar Aker

Jericho Agro-Industrial Park: Bringing State-of-the-Art Industry to the World’s Oldest City

Jericho is reputedly the world’s most ancient, continuously inhabited city, its fortified walls dating back 10,000 years. Today it is a haven of self-rule in central Palestine and a mecca for residents in the West Bank seeking a respite from their political and economic woes, as well as for some 700,000 tourists a year who visit the area’s famed biblical and Islamic sites.

But on a 10-minute drive out-of-town, the vibrant streets, palm trees and market stalls filled with the lush produce of the Jordan Valley give way to the desert. It’s hard to believe that in the space of a few months, 11.5 hectares of rocky soil and flat, dry terrain will give way to an industrial zone of processing plants and modern factories capable of exporting the region’s high quality agricultural products to nearby Jordan and onward to lucrative markets in the Arab Gulf states and the European Union.

It is just one of three such zones—along with others in Bethlehem and Jenin—planned by the Palestinian Industrial Estates and Free Zones Authority (PIEFZA) to help increase jobs and opportunities for small- and medium-sized enterprises, as well as export earnings. If successful—and there are many “ifs” given Israel’s control of the surrounding region, the pioneering Jericho project, known as the Jericho Agro-Industrial Park (JAIP), could prove to be a boon to private and foreign investment, particularly from Palestinian and Arab entrepreneurs in the diaspora.

Palestine’s Growth Attracts New Investment Funds

Confidence in Palestine’s regulatory framework and in the resilience of the Palestine Stock Exchange in the wake of turmoil in the Arab world* is helping to boost both regional and foreign interest in its new investment funds, officials and analysts report. So too is the growing possibility that the Palestine Stock Exchange (PEX) will be added to the MSCI Frontier Markets Index, which currently groups 26 countries including Nigeria, Kenya, Vietnam, Kazakhstan, Pakistan and Jordan as well as the Arab oil exporting countries of Qatar, Kuwait and the United Arab Emirates.

Munib Al-Masri, Chairman of Padico Holding, outside his home in Nablus. Padico is a favourite of international investors.

Launched in May, 2011, the Luxembourg-based Rasmala Palestine Equity Fund is currently trading almost 5 per cent below its peak, but above the lows reached in November in the aftermath of the Palestinian bid for statehood at the UN and the withdrawal of substantial aid funds from the US, as well as the temporary halt in tax revenue transfers by Israel. Beginning with $15 million, provided in part by the Palestine Authority’s Palestine Investment Fund, it is open-ended and is expected to reach up to $100 million by mid-2014. RPEF is targeting a diversified portfolio of growth and value stocks listed exclusively on PEX, as well as initial public offerings (IPOs) and Palestinian firms which may be considering IPOs. Favoured sectors include telecommunications and pharmaceuticals as well as banking and investment.

Palestine Stock Exchange 2nd Best in Arab World

The Palestine Stock Exchange’s Al Quds Index is reporting modest gains this year, in line with global trends, despite the upheavals in the Arab world, closing at 480.82 on February 15. It ended 2011 at 476.93, marking a loss of 2.6 per cent for the year, according to reports from the PSE.

Despite the losses last year, the PEX came second in the list of Arab exchanges, just behind Qatar — the only one to report a rise. It ended 2011 with a gain of 1.12 per cent.

The market capitalisation of the PEX rose 13.6 per cent on the back of seven new listings in 2011, reaching $2.78 billion compared to $2.45 billion in 2010. New entrants included Wataniya Palestine Mobile Telecommunications, Union Construction and Investment, Golden Wheat Mills and Alrafah Microfinance Bank.