Peace Accord Bets Trigger Palestine Stock Trading Surge

Photographer: Andrew Harrer/Bloomberg

John Kerry, U.S. secretary of state. Close

John Kerry, U.S. secretary of state.

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Photographer: Andrew Harrer/Bloomberg

John Kerry, U.S. secretary of state.

The two-fold surge in trading in Palestine’s $3 billion stock market indicates investors are betting U.S. Secretary of State John Kerry will succeed in brokering a peace deal with Israel, the exchange chief said.

The Palestine Stock Exchange Index (PASISI) gained 8 percent in the two months to Jan. 16 as institutional investments from the Persian Gulf led to a doubling of volume, Chief Executive Officer Ahmad Aweidah said in an interview. Palestine Telecom Group and Palestine Development and Investment Co. drew the biggest flows, with the two stocks rallying 12 percent and 21 percent, respectively, in the period.

“If there’s a framework agreement, it’ll be a game changer” for the exchange, Aweidah said Jan. 17 during an investor trip to London. “There’s certainly a lot of optimism in the market about the direction of the political negotiations.”

Appetite for Palestinian assets has increased since Kerry started a fresh round of talks in July to get Israeli Prime Minister Benjamin Netanyahu and Palestinian President Mahmoud Abbas to agree on a shared vision for peace. The index gained 13 percent last year on speculation a deal will support the economy and boost profitability of companies. The exchange, which is publicly traded, is set to turn a profit in 2014 after posting losses in the previous two years, Aweidah said.

Possible IPOs

The Palestinian gauge, which rose 1.2 percent last week, quadrupled after Israel’s withdrawal from the Gaza Strip in 2005, and if a peace deal is reached by Kerry’s April deadline, another significant rally will unfold, according to the bourse chief. The U.S. secretary of state has made 10 trips to the Middle East over the past 11 months as he seeks to coax both sides into accepting a deal.

“In spite of the skepticism that’s pretty much prevalent, it looks like something might happen on the political front, regardless,” Aweidah said. “The time to invest in Palestinian stocks is now.”

As many as four family-owned businesses may opt to sell shares in initial public offerings if political leaders strike an accord, Aweidah said. Palestine Power Generating Co. will probably also sell stock on the heels of an agreement, he said.

Persistent uncertainty and a falloff in aid have hurt the economies of the West Bank and Gaza, with the International Monetary Fund projecting growth slowing to 3 percent by 2016 from 4.5 percent last year and 5.9 percent in 2012.

Risk Appetite

Veteran Palestinian negotiator Nabil Shaath said last week that a peace agreement is impossible unless Netanyahu drops his demand that Palestinians recognize Israel as a Jewish state. Shaath argued that that would sacrifice the right of return for Palestinian refugees.

Palestine Telecom, known as Paltel, could witness “double-digit growth” in revenue next year if Israel eases restrictions on the company’s network, Chief Executive Officer Ammar Aker said in London on Jan. 17.

A deal would “impact the company dramatically in terms of growth and new services that can be offered to the customer,” Aker said. “If the political situation changes, there will be more people coming back to Palestine and our subscriber base would also grow.”

Investors have also become more interested in Palestine as the war in neighboring Syria and a political crisis in Egypt damped the appeal of some Middle Eastern countries, Aweidah said. Volume on the 49-member Palestinian exchange, situated in the West Bank, almost doubled last year, according to annual averages compiled by Bloomberg.

“If you thought Palestine was bad, look at Syria, look at Egypt,” he said. “We have the experience and we have the knowhow. Our companies have had decades of dealing with crisis.”

To contact the reporter on this story: Zahra Hankir in London at zhankir@bloomberg.net

To contact the editor responsible for this story: Daliah Merzaban at dmerzaban@bloomberg.net

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