The Bulletproof Palestinian Stock Exchange

In the West Bank, the Palestinian stock exchange trades in tiny companies and the prospect of a peaceful future

During the Israeli siege of Nablus in 2002, Mohammad Hijaz hopped fences, hid behind walls, and snuck ambulance rides to get to the Palestinian stock exchange. Operation Defensive Shield shuttered the market as Israeli tanks took positions inside the West Bank city, but Hijaz frequently stole into the office to finish reports.

The Palestine Exchange, known as the PEX, had rented a hotel nearby for employees who live outside the city. Hijaz, who oversees relationships with companies listed on the exchange, would go the week without seeing his wife or children, returning to his home only on weekends. Commuting every day through the multiple Israeli military checkpoints would have been impossible. “We were challenging the occupation at that time for national reasons and to work. At the end, you have to work. For your family, you have to earn money,” Hijaz says over coffee in the bright, glass-enclosed conference room of the bourse’s headquarters in Nablus.

On days the 24-hour curfew was briefly lifted, Hijaz remembers calling brokers and fellow employees to see if they too could sneak in for impromptu trading sessions. When the stock exchange fully reopened 39 days later, volume of trade fell, but the tiny market plodded on.

In the last 14 years, the PEX has weathered Israeli invasions, a civil war, and an international blockade. During the Arab Spring, when markets in Egypt, Libya, Bahrain, and Tunisia had to suspend trade to avoid crashing, the PEX plowed ahead, drawing strength from the territory’s tumultuous history. It ended the first half of this year as the No. 2-performing market in the Arab world—second to Iraq. “We’re almost unique in the Arab world because we’re sort of a shockproof exchange,” Ahmad Aweidah, the PEX’s chief executive officer, says in his office in Ramallah. “We could not possibly be affected by political chaos, because we are an exchange that was born into political chaos. … For us, what happened in Cairo is like child’s play.”

An outgrowth of the Oslo Accords, the exchange is minuscule. The market value of the stocks traded on the exchange is about $2.8 billion, vs. Egypt’s $65 billion. The exchange lists 46 of Palestine’s biggest companies, though only 18 are actively traded. The West Bank’s Palestine Telecommunications, worth almost $1 billion, is the largest company on the exchange, which also includes Palestine Electric in Gaza and Golden Wheat Mills in Ramallah. According to the PEX, around 50 percent of trades are made by Palestinians; the rest come from abroad.

Running a stock market under occupation and in the epicenter of the region’s conflict has a certain advantage—it’s forced the PEX to come up with contingency measures for the kind of instability that shut down many of its Arab peers. The market is entirely virtual—there is no trading floor—so it can be run remotely during curfews or protests. Operations are routed through lines owned by the local phone company, with a backup system through an Israeli subcontractor that lets trading continue if the phone lines are cut. There are servers in two locations in the event of a military confrontation. “If we get hit by a missile, we’ll still continue working,” Aweidah says. He points out that companies in the territories, such as the exchange, are used to operating through periods of turbulence.

Most trading takes place over the phone, and 20 percent happens exclusively online. Target Investment & Securities, a brokerage in Nablus, is one of the few places to see live buying and selling. In a dimly lit room in Target’s office, a handful of middle-aged men stare at a wall where a projection of stock values on the PEX flickers in real time. The Excel-like spreadsheet that takes up most of the wall is static until a cell turns green—the price of a stock has gone up. A murmur echoes through the room, and Youssef Halaweh quickly rises from his seat.

The 70-year-old retired carpenter walks out the door and down the hallway to Target’s brokerage desk. He fills out a form to sell 10,000 of his shares in a major Palestinian company for a price slightly higher than its current going rate. Halaweh deliberates for a few minutes before handing the signed pink form to the broker. Then he unleashes a sheepish smile of missing teeth that lights up his weathered face. “I’m selling today because I need some cash,” he explains. “There are some things I need to buy for my family.”

Halaweh started dabbling in the Palestinian stock market when it opened in 1997. At the start, he bought shares in just one company; now he says he has over 100,000 shares spread among 13. Along the way, he sold land to invest in the emerging market. “There are losses, but overall it was a gain,” he says proudly. For Halaweh and for many other Palestinians, investing in the stock exchange is a matter of national pride.

Back in the projection room another cell has turned green, and Hikmat Duekait, a retired grandfather, lets out a whistle of approval. “I love the green color,” he cheers, before admitting he’s so obsessed with trading that he joins a small die-hard group in Target’s offices daily. “I don’t have anything else to do,” Duekait says of life in the occupied territory. “I get bored sitting in the house. I come here and talk about everything—politics, markets. It’s just like a coffee shop.” He has been investing since 2004 and knows all the brokers at Target by name.

The PEX has been through its share of conflict-associated booms and busts. Surging more than 300 percent in 2005, the exchange tumbled after the 2006 election, when fighting between Fatah and Hamas gripped the streets and an international blockade inhibited businesses.

“In 2005 this room was so crammed, people had to stand outside in the hallway,” Duekait recalls. That year, many sold their land or wives’ jewelry to invest, only to lose big when the exchange shed almost 50 percent of its value by the end of 2006.

“No one doesn’t lose,” admits Majdi Aqqad, a shoe factory owner who has been trading on the exchange since 2005. “But it’s like gambling: You lose and you want to make more money,” he says, keeping his eyes glued to the screen.

Like many emerging markets, the PEX suffers from illiquidity and a lack of investor education: The men in Target’s room can’t articulate exactly why they buy or sell stocks, and brokers are legally prohibited from offering investment advice. The PEX and brokerages such as Target have tried to encourage investors to learn about the companies they’re trading.

“We told the people to take the [company’s] financial statements. They have to read it and to know which is better, this company or this company, which has profits and which hasnot,” says Assmaa Mohammed Saeed al-Masri, Target’s acting general manager. “They have to know the board, who is on the board on this company. If they are good or they are not, if they are thieves, if there is corruption.”

The men in Target’s projection room say they decide among themselves when to sell and when to buy. “I am an old investor. Everyone asks me for advice,” Halaweh boasts. He says his earnings have helped him put nine children through school.

It wasn’t always easy to persuade Palestinians to invest in the market. At the beginning there was a religious stigma associated with the exchange, because gambling is forbidden in Islam. “It took a long time to show people that the stock market is not haram [religiously forbidden], and you are not gambling but investing in companies,” Masri says.

Although Target offers trading in the Jordanian market, many investors buy only on the PEX. “I invest in Palestine, to make the Palestinian market grow,” Halaweh says.

Lately, playing the market is paying off. According to the International Monetary Fund, Palestine’s economy grew 9.3 percent in 2010 and 7 percent in the first half of 2011. This year the exchange listed six new companies. As of the end of August, the al-Quds index, which tracks a dozen companies on the exchange, is up 0.4 percent for the year.

Brokers and traders concede the market is still subject to the whims of the conflict’s politics. Another round of violence could wipe out recent gains. “If you don’t have hope, you don’t have investment,” says Masri.

Moreover, Palestine’s flourishing economy has been strengthened by foreign aid dispensed by Western governments. “It is a very donor-dependent society, and that has negative effects on the Palestinian economy,” says Khaled Al Sabawi, general manager of the Ramallah-based developer Union Construction & Investment. “As the donor money has poured into the West Bank, of course, you’re going to see a bubble economy form.”

If donations were cut, the effects would ripple into company profits, lowering share value as well as people’s willingness to invest in the exchange. “There’s this perceived stability of economic expansion that is not sustainable. It’s highly dependent on the political situation or the conditions set by the donor community,” says Al Sabawi. “When a political problem arises, our funding is going to be cut off.”

Despite the risks, foreign investors have taken note of the tiny exchange. Lotus Financial Investment, a brokerage, launched in 2005 with the goal of bringing outsiders into the Palestinian market. “We succeeded big time. Now we are the largest brokerage, dealing with foreign investors,” says Tarek Shaka, Lotus’s general manager. “A lot of people, when we contact them, they don’t have the faintest idea that there is a stock exchange in such areas,” Shaka laughs. These days, 80 percent of the brokerage’s trade comes from foreign investors, mostly funds.

The possibility of a peaceful settlement to the conflict could send the PEX soaring. “I can’t wait until the day when there’s actually a peace agreement. The morning after that would be a day to look forward to,” the PEX’s Aweidah says. “Imagine—Mahmoud Abbas and Netanyahu sign the agreement on Sunday, it would be interesting to see what happened here on Monday.”

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