The Portland Trust Palestinian Economic Bulletin, February 2010 on PSE

Monday, 22 February 2010

The Portland Trust

Economic Feature
February 2010
The Palestine Securities Exchange


The Palestine Securities Exchange (PSE), in partnership with the PALTEL Group, is currently preparing for an
investor roadshow in London, on 17-19 March 2010. The Palestinian delegation to the UK will include PSE listed
companies, PSE member brokerage companies, senior representatives from the Palestine Capital Markets
Authority (PCMA), the Palestine Investment Fund and the Palestinian Investment Promotion Agency (PIPA). Ahead
of the visit the Bulletin has analysed the recent and past performance of the PSE, its future plans and wider efforts
to encourage investment.

About PSE
The PSE, was established in 1996 as •
a private shareholding company to
promote investment in the Palestinian
Territory. The PSE has been trading
since early 1997. In February 2010, the
PSE began the process to become a
listed public shareholding company.
The headquarters are in Nablus, a city •
in the north of the West Bank. There is
arepresentativeofficeinRamallah,incentral West Bank.
The PSE operates under the •
supervision of the Palestinian Capital
Market Authority and in accordance
with Securities Law No. (12) 2004 and
its bylaws.
There are no restrictions on foreign •
investment at the PSE, unless the
by-laws of the listed companies
themselves state otherwise.
Dividends, capital gains and interest •
are all exempt from tax. All activities
related to buying and selling
securities are exempt from stamp
HSBC Middle East provides global •
custody services to interested foreign
Companies listed on the PSE are •
subjected to standardised information
disclosure requirements, including
There are currently 39 listed •
companies on the PSE.
Trading is from Sunday to Thursday •
with pre-opening from 09.45 – 10.00,
opening at 10.00, trading from 10.00 –
12.00, pre-closing from 12.00 – 13.00
and closing at 13.00.
For further information see: http://•
People are often surprised to hear that there is a Palestinian stock exchange. They
are even more surprised to learn that, after modest beginnings, the PSE was the
best performing stock exchange in the world in 2005, with its main index, the Al

Quds Index of 12 leading shares, rising by over 300% in spite of ongoing conflict

and instability in the region.

In 2008, the Al Quds index dropped only 16%, which compares well to the 55%
losses in the Morgan Stanley index of Arab markets, and 54% losses in the Morgan
Stanley index of emerging markets. In 2009, despite ongoing political instability,
the Al Quds Index increased 11.62%, to reach 493.00 points at the end of the year,
compared to 441.66 points at the end of 2008. The Index peaked at 557.3 on 23
March 2009.

Daily Closing of Al Quds Index During 2009
Index Points
Foreign Investment

Foreign Direct Investment (FDI) into the Palestinian Territory fell from an average of
$85m per year in the 1990s to $29m in 2008.1
While growth in the West Bank was over
7% last year, the IMF representative for the Palestinian Territory, Oussama Kanaan,
told the Bulletin that the broader political situation and associated restrictions
on the economy continue to deter investors. In addition, the Palestinian Territory
suffers from an image problem. It gets more media coverage than anywhere else
in the world, yet often the images are politically focused and negative, and do
not represent the true picture for potential investors. The CEO of the PSE, Ahmad
Aweidah, hopes to change this.

The PSE visit to London is one in a series of roadshows that aim to attract new
investments into Palestinian listed companies and increase awareness of the
market. The targets are institutional investors, the Palestinian Diaspora and foreign
investors more generally.

1 See:

Liquidity in the PSE has improved impressively in the last
decade. In 2008, trading volumes were up 13% on the previous
year. In line with global trends they fell 30% in 2009.
PSE Trading Volume 1997 – 2009
50,000,000100,000,000150,000,000200,000,000250,000,000300,000,000350,000,000400,000,000199719981999200020012002200320042005200600720082009US $ PSE Trading Volume 1997 – 2009
50,000,000100,000,000150,000,000200,000,000250,000,000300,000,000350,000,000400,000,000199719981999200020012002200320042005200600720082009US $


In 2009 increases were seen across all sectors except
the insurance sector which fell 7.25% to 53.56 points. The
banking sector rose to 102.83 points (a 30.6% increase),
manufacturing sector to 22.56 points (2.17%), the investment
sector to 22.55 points (2.0%) and the services sector to 49.9
points (6.24%).

The best performing stocks in 2009 were: Palestine
Poultry (90% increase); Palestine Industrial Investment
(75%); Palestine Electric Company (53%); Arab Real Estate
Establishment (50%); and Al Quds Bank (34%).

Key Ratios

The value of shares traded during 2008 increased 46% in
2008 before falling 58% in 2009.

PSE Trading Value 1997 – 2009
0500,000,0001,000,000,0001,500,000,0002,000,000,0002,500,000,0001997199819992000200120022003200420052006200720082009US $
Meanwhile market capitalisation fell 15% in 2008 but

2006 2007 2008
Turnover Ratio (%) 26.23 31.94 33.7
Price Earnings Ratio (x) 16.86 13.59 10.68
Earning Per Share ($) 0.19 0.19 0.2
Return On Market Capitalisation (%) 0.06 0.07 0.09
Return On Equity (%) 0.17 0.13 0.12


There are 10 approved brokers at the PSE: Jordan & Palestine
Financial Investment Company, United Securities Company,

Target Investment & Securities Company, Al-Watanieh
Securities Company, Global Securities Company, Sahem
Trading & Investments Company, Lotus Financial Investments

Company, Al-Wasata Securities Company, Nawras for

increased by almost 12% in 2009.

Financial Investments Company and the Arab Investment

PSE Market Capitalisation 1997 – 2009
1997199819992000200120022003200420052006200720082009US $

Group (which was approved in 2009.) Three of these account
for around 60% of all traded values in 2009. One brokerage

firm alone traded $267.9m in 2009 (representing 28% of total

value traded).

Company Listings

In 2009, two new companies were listed: Globalcom
Telecommunications Company (October 2009) and the

Palestine Islamic Bank (July 2009).
PalTel stock dominates the PSE with over 50% of the market

Sectoral Analysis

The five main sectors of the PSE are banking, insurance,

investment, industry and services. The heaviest trading (by
volume) occurs in the investment sector, while services has
the highest market capitalisation.

Sector No. of
“Trade Volume
Trade Value
Market Capitalisation
Banking 7 93.9 176.9 601.4
Insurance 5 6.0 6.5 91.7
Investment 8 93.7 117.0 426.8
Industry 10 13.5 27.1 179.2
Services 9 31.8 172.9 1076.2
Total 39 238.9 500.4 2375.4

value. Paltel Group is an integrated economic group
consisting of the Palestine Telecommunications Company
(PalTel), the Palestine Cellular Communications Co. (Jawwal),
HADARA (a technology and internet company), Hulul (a
business solutions company) and PALMEDIA (a multi media
service provider). PalTel recently also listed its stock on the
Abu Dhabi Stock Exchange in an attempt to attract regional



Disclosure at the PSE is 100%. All of the listed companies
disclose the required information within the legal timeframe,

including quarterly financial reports. This reflects coordinated

efforts by the PSE and PCMA to enhance the disclosure

Encouraging Investment

In the last few years efforts have been made to promote the Palestinian Territory as an opportunity for investors. A number
of investment conferences have been held, in Bethlehem, Nablus, Washington and London. There are plans for a follow up
conference in Bethlehem in June this year to focus on small and medium sized enterprises.

There has also been a focus on further improving the regulatory and technical environment for investment. For example the
Palestinian Monetary Authority has established a comprehensive credit registry for companies and plans to launch a credit
scoring system in spring this year. The Capital Markets Authority has launched a new Code for Corporate Governance.

On the technical side, the PSE has adopted a number of new IT services, including an online system for the instant
supervision of securities trading (SMART), a new security system and a stock simulation system as part of the PSE’s

‘Investment Education Programme’. In 2009, the PSE began issuing investor numbers for shareholders. The PSE also became

a partner of the Association of National Numbering Agencies (ANNA). This has enabled the PSE to qualify and issue unique

International Securities Identification Numbers (ISIN) to each of the listed equities, thereby improving visibility and efficiency

for international investors.

The PSE is also trying to modernise the structure of private sector companies, moving away from a family-owned model

to more listed companies. They have shortlisted, and are working with, fifteen family owned companies that qualify as

candidates for conversion into public shareholding companies and eventual listing.

Serious efforts are being made to attract investment from the Diaspora, particularly those in Jordan, Chile and the Gulf. ‘The

Diaspora is a primary actor to engage at this juncture of the economy and development cycle’ said Kanaan. In May 2009
the PSE organised a roadshow to Chile, the country with the largest Palestinian Diaspora community (500,000) outside of

Jordan. Palestinians have been living in Chile since 1840 and make a significant contribution to Chile’s GDP through owning,

for example, the major media groups and six of the eight Chilean banks.

Aweidah told the Bulletin that the roadshow was a tremendous success in terms of changing the communities’ perception

about the Palestinian market. ‘They had no idea we had a stock exchange, banks, telephone companies, successful

businesses’ he said. 15 Chileans of Palestinian origin subsequently visited the Palestinian Territory in December to follow-up.

A mutual fund of $25m has been set up to invest specifically in Palestinian equity on the PSE and approved by the regulator.
When it begins operating, any Chilean will be able to buy into the fund. Kanaan told the Bulletin that he is ‘very positive about

the PSE’s efforts with the Chilean Diaspora and recent efforts to improve regulations to attract foreign investment.’

The Head of Public Relations and Investor Education at the PSE, Fida Musleh Azar, told the Bulletin that the London Roadshow
on the 17-19 March 2009 will attempt to raise awareness about promising investment opportunities and success stories in

the Palestinian Territory. ‘We are trying to meet the Palestinian Diaspora in London, but, it is not the same as in Chile, where

95% of investors were Palestinian. The focus in London will be on frontier market funds.’

One of the biggest foreign investors in the PSE is Blakeney Management, a London-based frontier fund, which has been
investing since 2007. The PSE hopes to attract similar institutional investors in March, perhaps returning annually to the

financial capital since it has the world’s largest concentration of investment funds with an interest in ‘emerging markets’.
Aweidah believes there is now interest in the potential of ‘frontier markets’, which are still a few degrees below emerging.
‘There are companies within such markets that have adapted to adverse economic and political conditions and have sound

fundamental operations. They are undervalued simply because they are where they are and present a good opportunity for
investment growth in the future’ he explained.

The Portland Trust and the Palestine British Business Council are helping the PSE organise the London Roadshow. Further
roadshows are planned, including one in New York, one in Jordan this summer and another in the UAE towards the end of
the year.

Future Company Listings

In order to increase liquidity and the number of listings, the PSE are encouraging more and more public shareholding

companies to list. Four or five new companies are expected to fully list this year. These include Wataniya and APIC (Arab

Palestinian Investment Company) which owns Sky Advertising, Senora and UNIPAL among others.

The Palestine Investment Fund (PIF) is a publicly owned investment fund with $800m of assets under management. It is one
of the leading long-term investors in the PSE. PIF owns 43% of Wataniya Mobile, the remaining 57% is owned by Qatari

based Q-tel. PIF hopes Wataniya will go public before the end of the year, floating 30% on the PSE and offering a good

opportunity for institutional investors as well as the general public. Wataniya has had a strong start since launching last

year, with a significant and increasing subscriber base. Wataniya will be the largest IPO in recent years. PIF also established
Amaar Group in 2008, its $220m real-estate arm, which it plans to float on the PSE in the next 2 to 3 years. Last month PIF, in
partnership with Abraaj Capital from Dubai, launched Palestine’s first private equity fund, the $50m Palestine Growth Capital

Fund, focusing on small and medium size enterprises.

Palestine Development and Investment Company (PADICO) is the other largest player on the PSE. PADICO invests in a

range of Palestinian sectors including telecommunications, real estate, infrastructure, manufacturing and finance. In the

medium term PADICO is focusing on infrastructure projects and is currently seeking foreign partners to invest in companies
working in electricity, wastewater, water, solid waste and renewable energy. PADICO hopes to list some of these companies
in the coming years. The Palestinian Power Generation Company has just received government approval to build a power
plant and PADICO is now conducting an in-depth feasibility study. 25% ($30m) of the funding for the company will shortly
be offered to the public whilst 75% ($90m) has already been secured by local and regional companies. PADICO is currently
restructuring its real estate and tourism companies and plans to merge 16 companies into one real estate holding company
(PRICO) with a total capital of $200m, of which 16 million shares will be allocated for a strategic investor.


The PSE is currently owned by PADICO (78%), Sanabel for Trading and Investment (17%) and Euro Mena (5%). The CMA has
recently authorised an IPO for the PSE, and later this year PADICO plans to decrease their share to around 40-50%, selling
the balance to local and foreign strategic investors.

This move will make the PSE the first of its kind in the Arab World. The Dubai Exchange, for example, is listed but as a ‘public

joint-stock company’, mostly owned by the government. Until now, although the PSE is a regulated market, there has been a

potential conflict of interest with PADICO being a listed company and the majority shareholder of the exchange. ‘It is in the

interest of PADICO and the PSE to go public for credibility, and to be an example of transparency, governance and corporate

conduct’ Aweida explained. ‘The closer we can be to the standards set by the World Federation of Exchanges, the better.

Our long-term strategic objective is to become a full WFE member’ he added.

PSE Listed Companies
Services: Arab Hotels (AHC), Arab Real Estate Establishment (ARE), Globalcom Telecommunications Company (GCOM),
Grand Park Hotel & Resorts (HOTEL), Nablus Surgical Center (NSC), Palestine Telecommunications (PALTEL), Palestine
Electric (PEC), Arab Palestinian Shopping Centers (PLAZA), The Palestinian Company for Distribution & Logistics Services
Industry: Arab Concrete Products (ACPC), Arab Company for Paint Products (APC), Palestine Poultry (AZIZA), Birzeit
Pharmaceuticals (BPC), Golden Wheat Mills (GMC), Jerusalem Cigarette (JCC), Jerusalem Pharmaceutical (JPH),
Palestine Plastic Industrial (LADAEN), The National Carton Industry (NCI), The Vegetable Oil Industries (VOIC).
Banking: Arab Islamic Bank (AIB), Alrafah Microfainance Bank (AMB), Bank Of Palestine (BOP), Palestine Commercial
Bank (PCB), Palestine Investment Bank (PIBC), Al-Quds Bank (QUDS), Palestine Islamic Bank (ISBK)
Insurance: Arab Insurance Establishment (AIE), Ahliea Insurance Group (AIG), AL-Mashreq Insurance (MIC), National
Insurance (NIC), Trust International Insurance (TRUST).
Investment: Arab Investors (ARAB), Al-I›Timan for Investment & Development (IID), Jerusalem Real Estate Investment
(JREI), Palestine Development & Investment (PADICO), Palestine Investment & Development (PID), Palestine Industrial
Investment (PIIC), The Palestine Real Estate Investment (PRICO), Union Construction and Investment (UCI).

The Economic Feature

This economic feature is prepared and edited by The Portland Trust. Please send any comments, suggestions, or complaints to
© 2009 The Portland Trust

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