Palestinian stock market triumphs by staying alive

Despite Israeli blockades, trading on 24 companies continues an hour a day

By Peter Hermann
Sun Foreign Staff
Originally published May 16, 2002


NABLUS, West Bank - The Palestinian Securities Exchange will never be confused with Wall Street.

Lacking frenzied traders and banks of computer screens, the Palestinian version of a stock market resembles an insurance office on a sleepy day.

It survives in a city where Israeli army blockades have cut off direct contacts with other towns. The central marketplace is in ruins, few municipal buildings are standing, and some neighborhoods are controlled by militants challenging the Palestinian Authority.

The triumph of the Palestinian stock market is that, seven years after its establishment, it exists.

"It is very important just that we are still alive," said Hasan Adnan Yassin, a Rutgers-educated statistician whose main job as the exchange's general manager is to keep his small empire from collapsing. "We certainly are struggling, but we will not give up."

For the foreseeable future, the exchange is more a novelty than a major business enterprise. Just two dozen companies trade shares here, and trading is conducted an hour a day, three days a week.

Stocks are bought and sold online. Except when the computers crash, no one has any reason to be on the trading floor, where share prices flash by on a wall-mounted marquee to an audience of empty chairs.

The exchange's glass-walled offices are furnished with black leather chairs surrounding oak tables, and Yassin seems as polished as the furnishings as he offers generalizations about the perilous state of the Palestinian economy and his job of keeping an embryonic stock market alive during troubled times.

"When the political situation is stable, the volume of our trading will increase," said Yassin. He makes no attempt to offer theories about the market because for every business here, the most important question is when the Israeli-Palestinian conflict will end.

Yassin, born in the West Bank city of Tulkarm, comes to work crisply dressed in the Western business uniform of jacket and tie in a culture where open collars and jeans are the rule. But his manner of dress doesn't outweigh the customs of Palestinian society, where family ties and influential friends are the most important currency. The adage that it's-not-personal-it's-business doesn't apply. Here, everything is personal.

The stock exchange is akin to a private club with members who not only run companies, but also trade most of the stock among themselves. Two companies, Palestine Development & Investments Co. and Palestine Telecommunications Co. dominate the market: They are valued at $64 million, more than six times the combined value of the 22 other companies on the exchange.

Palestine Development & Investments owns the private stock exchange as well as substantial holdings in three listed companies and two brokerages that advise stockholders and manage their money.

"Accountability is a problem," Yassin said. "Most of the issues we have are that companies do not disclose their finances very well. That is still something that most Palestinian owners regard as very private, even from government."

There are few outside controls and no laws governing ethics or business practices; risk is limited only by a rule that caps the rise or fall of any stock to 5 percent on any one day.

That hasn't prevented an almost catastrophic fall during the 19-month Israeli-Palestinian conflict. In that time, the market has fallen more than 40 percent. The combined value of all its listed companies is $74 million - small even by the standards of the impoverished West Bank and Gaza Strip. Trading is conducted in American dollars and Jordanian dinars.

"It represents such a small portion of the Palestinian economy that the market is really irrelevant," said Ephraim Kleiman, an Israeli economics professor at Hebrew University in Jerusalem. "It could collapse tomorrow and it wouldn't cause a stir."

Kleiman, who studies Arab economies, said the Palestinian stock market is not a valid economic barometer. "In the U.S., the slightest thing happens in the stock exchange and people adjust their spending behavior," he said. "Hardly anyone notices what happens in Nablus."

Yet he called the exchange "an interesting phenomenon that eventually will be necessary if the Palestinians want to modernize their economy. It is very important for the Palestinian's economic future."

The investors are primarily an emerging class of educated business owners with connections to the United States and prosperous Arab countries. When peace seemed imminent, these investors planned fancy hotels, restaurants and shopping centers. Those projects are mostly unrealized, the failures evident in half-finished buildings scattered throughout the West Bank and Gaza Strip.

Mohammed Masrouji, a businessman from Ramallah, is a typical player in the market. The 61-year-old insurance company owner said many investors "are selling their shares to have spending money to eat."

Those who can afford to stay in the game, he said, realize that this is the perfect time to buy, when prices are low, and gamble the fighting will end so they can cash in on the boom that should come with peace.

"This is the best time to invest," Masrouji said. "But the investment environment isn't good. People are afraid of the situation. ... The market is affected by weak buying power and a lack of income."

Israeli tanks that enter Nablus don't help. The city is regarded as a stronghold for Hamas, a radical Islamic group whose preferred weapon is the suicide attack. Hardly an indicator of economic stability.

When fighting breaks out in town, the stock exchange closes its doors. Eleven companies traded fewer than 10 days in all of 2000; one didn't trade at all.

The market closed most of March and all of last month, when Israeli soldiers occupied the city, including the Palestinian communications company building. But Yassin's building emerged unscathed.

He reopened trading last week and stocks immediately fell - dropping the maximum 5 percent allowed each of three days. But Monday, the market rose, a change Yassin attributed to Palestinian leader Yasser Arafat's visit to three West Bank cities, including Nablus, his first venture out of Ramallah in six months.

The stock exchange was doing poorly when the Palestinian uprising began at the end of September 2000. Six million shares were traded that month, down from a high of 15 million shares that February. In October 2000, as violence spread, trading volume fell to 1 million shares and then to 460,000 that November, when the market managed to open for only nine days and a little more than 100 transactions were recorded.

"It was bad before," Yassin said this week. "Now, it's worse."

Even a floundering market can play an important role. The types of businesses listed on the exchange reflect the emerging economy of a state in the making - communications, construction, tourism and shopping centers. And the companies that break even or make profits produce what people need even during wartime: telephones and televisions.