Most activity is centred on the bourse's blue chips, Palestine Development & Investment Company (Padico), Palestine Investment & Developmentand Palestine Telecommunications Company, recently joined by Palestine Electricity Company (PEC), which listed 33 per cent of its shares on the PSE in March, prompting a brief surge in trading volumes. PEC is still fresh from the triumph of getting the long-awaited Gaza independent power project (IPP) up and running in April and its shares have appreciated by about 20 per cent since trading began.

'Movements of the 26 stocks traded on the PSE follow the vicissitudes of the area's politics,' says Abdalla Awad, analyst at Amman-based Atlas Investment, the investment banking subsidiary of Arab Bank. 'And at the moment, investors find the outlook pretty bleak.' The benchmark Al-Quds index is down by about 1.5 per cent since the beginning of 2004. Atlas' fortnightly reports on the market hammer home the point. 'Israeli bulldozers continued paving the way for the barrier wall that is being built in the northern part of Jerusalem, isolating about 80,000 Palestinians from the eastern part of the city,' says a report in mid-June. 'As a result, trading at the PSE began to scale down after the previous week's surge.'

The reports also make clear the difficulties of doing business in the territories. 'The Israeli military entered the West Bank city of Ramallah in a special operation targeting certain bank branches,' says an issue from February. 'Several million dollars were removed from the vaults of the besieged banks.'

Clearly the PSE cannot escape from the political turmoil surrounding it, and it is fitting that the explicit reason behind its formation in 1995 was partly a political one. 'Given the dispersal of the Palestinian people and the concentration of personal wealth abroad, Palestine has a special and urgent need for an effective intermediary to facilitate and maximise the repatriation of long-term investment capital to the economy,' explains the exchange's website. 'Due to the inability of Palestinian expatriates to actively manage or monitor their potential equity investments, they require a vehicle for passive investments, namely the public shareholding economy.'

And perhaps more than anywhere else the PSE is a critical part of economic development plans, aiming to boost the flow of investment capital to productive agents in the economy and allow intrepid investors to spread risk and thus increase overall equity investments. When 60 per cent of residents live below the poverty line and unemployment is running at some 50 per cent, the need is urgent.