MARKET IN FOCUS: WEST BANK/GAZA: Interlinked futures
The fortunes of the Palestine Securities Exchange (PSE) and the political situation in the Palestinian Territories are intertwined. The Al-Quds Index hit its lowest mark this year at 458 points on 14 June. But, since an interim government was sworn in on 17 June, the index has started to recover. By 25 July, it had climbed 6 per cent.
The bourse has suffered a wave of corrections exacerbated by the political situation, which have driven the index down 16 per cent since the beginning of the year. Even the long-awaited initial public offering of shares in the stock market itself is on hold until a permanent cabinet is elected. But beyond political uncertainty, there are other factors affecting its prospects.
The number of cross-investments by listed companies has increased the effect of the downturn across the exchange.
'The issue of cross-ownership is extremely damaging to the market,' says Ammar Jarrar, senior vice-president of capital markets and asset management at Jordinvest.
Holding company Palestine Development & Investment Company (Padico), and its subsidiary the Palestinian Telecommunication Company (Paltel), dominate the PSE. Together, they account for more than 55 per cent of market capitalisation.
Padico has seven subsidiaries listed on the exchange. Padico would find it difficult to restructure or raise capital by exiting any of these stakes because of the ricocheting effect on the market.
Padico's own share price fell from a 52-week high of $3.61 to $2.06 on 25 July on lower volumes. It now trades at a price/earnings ratio of 11, a fraction below the market average. 'The prices for Padico and Paltel are at a floor,' says Jarrar.
'The company is in good shape and the share price does not reflect our situation,' says Ziad Turk, secretary-general of Padico. 'It reflects the Palestinian internal situation.'
In an effort to boost trading, Padico is seeking to broaden its 12,000-strong investor base by considering a dual listing.
'If someone wants to invest, it is easier to go through another market,' says Turk.
Poor second-quarter profits are not expected to impact the bourse as expectations are already low and investors are inured to bad news. 'Retail investors have a home bias,' says Ali al-Nasser, investment analyst at Mena Asset Management. 'When the market is down, they don't panic.'
Banks are the exception. The government's announcement in June that companies in Gaza are exempted from paying tax offers a welcome break for institutions like Bank of Palestine, the third largest listed company by market capitalisation and the most heavily traded stock.
In addition to Palestinians and Jordanians, Gulf investors have begun to show an interest in the market. Kuwait's Global Investment House has a stake in Bank of Palestine and Padico subsidiary Palestine Real Estate Investment Company. It has also launched a Palestine-focused fund to invest in listed stocks.
The fortunes of the Palestine Securities Exchange (PSE) and the political situation in the Palestinian Territories are intertwined. The Al-Quds Index hit its lowest mark this year at 458 points on 14 June. But, since an interim government was sworn in on 17 June, the index has started to recover. By 25 July, it had climbed 6 per cent.
The bourse has suffered a wave of corrections exacerbated by the political situation, which have driven the index down 16 per cent since the beginning of the year. Even the long-awaited initial public offering of shares in the stock market itself is on hold until a permanent cabinet is elected. But beyond political uncertainty, there are other factors affecting its prospects. The number of cross-investments by listed companies has increased the effect of the downturn across the exchange. 'The issue of cross-ownership is extremely damaging to the market,' says Ammar Jarrar, senior vice-president of capital markets and asset management at Jordinvest. Holding company Palestine Development & Investment Company (Padico), and its subsidiary the Palestinian Telecommunication Company (Paltel), dominate the PSE. Together, they account for more than 55 per cent of market capitalisation. Padico has seven subsidiaries listed on the exchange. Padico would find it difficult to restructure or raise capital by exiting any of these stakes because of the ricocheting effect on the market. Padico's own share price fell from a 52-week high of $3.61 to $2.06 on 25 July on lower volumes. It now trades at a price/earnings ratio of 11, a fraction below the market average. 'The prices for Padico and Paltel are at a floor,' says Jarrar. 'The company is in good shape and the share price does not reflect our situation,' says Ziad Turk, secretary-general of Padico. 'It reflects the Palestinian internal situation.' In an effort to boost trading, Padico is seeking to broaden its 12,000-strong investor base by considering a dual listing. 'If someone wants to invest, it is easier to go through another market,' says Turk. Poor second-quarter profits are not expected to impact the bourse as expectations are already low and investors are inured to bad news. 'Retail investors have a home bias,' says Ali al-Nasser, investment analyst at Mena Asset Management. 'When the market is down, they don't panic.' Banks are the exception. The government's announcement in June that companies in Gaza are exempted from paying tax offers a welcome break for institutions like Bank of Palestine, the third largest listed company by market capitalisation and the most heavily traded stock. In addition to Palestinians and Jordanians, Gulf investors have begun to show an interest in the market. Kuwait's Global Investment House has a stake in Bank of Palestine and Padico subsidiary Palestine Real Estate Investment Company. It has also launched a Palestine-focused fund to invest in listed stocks.This content is only available to full MEED package subscribers (MEED magazine and MEED.com).
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