Stock exchange thrives in Nablus

NABLUS, West Bank -- The economy is in a shambles, lawlessness reigns and the public is ambivalent about peace, but the mood on the Palestine Securities Exchange couldn't be more euphoric.

Based in Nablus, a city battered by the Israeli army where gunfire from militants still echoes throughout the downtown, the fledgling stock exchange doubled in the first quarter of the year on news of the emerging truce with Israel.

But it's a volatile exchange in a volatile region. During the first three trading days of April, the index dropped 13 percent after militants shot up Palestinian Authority President Mahmoud Abbas' Ramallah headquarters, as well as restaurants in the city.

PSE General Manager Hasan Yassin, a former econometrics professor, said the market is being driven by the performance of companies that have continued to profit despite Israeli-Palestinian clashes. The improved political climate also plays a role.

"The first reason is that the companies are doing well. The second reason is that political stability is better," Mr. Yassin said.

The tiny market -- all of 26 companies with a market value of just $2.3 billion -- has attracted money from companies in the Middle East, wealthy Palestinians outside of Israeli-controlled territories and local housewives, according to traders. During the first three months of this year, trading volume was five times higher than for all of 2002.

The gains began in August, when several companies on the exchange reported unexpected profits in 2003. That got the attention of Middle Eastern investors looking to shift money from Jordan, United Arab Emirates and Kuwait.

"Compared with regional markets, the PSE was very undervalued," said Rajah Iqdemat, a trader at ABC Investments who orders Palestinian stocks from Amman, Jordan. "There is huge potential for the Palestinian market. We are talking about fundamentals."

Three years ago, the exchange was barely operating. After Israel reconquered West Bank cities in 2002 in response to a wave of suicide bombings, Nablus -- a hotbed of militancy -- was under continuous curfew.

With Israel's army restricting movement within the West Bank, trading was halted for weeks at a time. But the exchange survived by making transactions via remote computers.

During the curfews, Mohemmad Salameh, the head trader at Global Securities, came in to execute transactions as a symbol of defiance.

Now, his firm's clients jam into a conference room with three computer screens -- to conduct live trading and execute orders. Global Securities has done more business in the past three months than the entire three years.

"The clashes between the Palestinians and the Israelis have dropped compared to what it used to be. Many people think the blackest days are past," Mr. Salameh said.

The gains are being driven by two blue chips: Palestine Development & Investment Ltd., a local holding company, and its phone monopoly subsidiary, Palestine Telecommunications Ltd. (PalTel).

The interest has even spread to the warrens of the Balata refuge camp, where residents are better known for their support of militant fugitives.

Mohammad Tiwari, a Hamas supporter who used to study finance, is advising a friend with $40,000 invested on the exchange. He is bullish on PalTel because he thinks the company eventually will list its shares on a larger exchange in the Persian Gulf.

Even though the truce with Israel remains fragile, Mr. Tiwari dismissed suggestions that Hamas might destabilize the calm by retaliating against Israel.

"Hamas actions stem from the interest of the Palestinian people," he said, "and the interests of the Palestinian people is a state of calm on the political level and the economic level."

To be sure, with almost half of Palestinians living below the poverty line and commerce still choked by Israeli military roadblocks, Mr. Yassin said the success of the PSE-listed companies isn't an indication that the average Palestinian is prospering as well.

"We haven't reached the point where we reflect the whole economy," he said.