PALESTINIAN STOCK MARKET ENDS FREEFALL; REGULATORS

UNCLAS JERUSALEM 003679

SIPDIS

SENSITIVE
SIPDIS

NEA/IPA FOR WILLIAMS/MAHER/WAECHTER; NSC FOR
ABRAMS/DORAN/WATERS; TREASURY FOR NUGENT/ADKINS

E.O. 12958: N/A
TAGS: ECON EFIN PGOV KWBG IS
SUBJECT: PALESTINIAN STOCK MARKET ENDS FREEFALL; REGULATORS
PRESS UNLISTED COMPANIES

REF: JERUSALEM 2443


1. (SBU) Summary. After plummeting for months, Palestinian
stocks have gained 20 percent since mid-July 2006. The
Palestinian Securities Exchange (PSE) August 13 reinstated a
wider daily price trading range of five percent, thereby
suggesting that concerns over market volatility have eased.
PSE and Capital Market Authority (CMA) officials are
insisting that all joint stock companies are listed and
provide regular financial reports. The PSE recently
suspended trading in one company's shares for its failure to
meet listing requirements. End Summary.

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Stocks Up
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2. (SBU) Stock prices on the Palestine Securities Exchange
(PSE) stabilized in July 2006 and are now rising steadily.
On July 16 -- four days after Hizballah's cross-border raid
-- the Al-Quds Index reached its lowest point at 494.65, down
56 percent for the year. Since that time, however, stock
prices have risen about 20 percent, with the Al-Quds index
reaching 593.19 on August 17.


3. (SBU) Average daily trading volumes (ADTV) have been
increasing, reaching USD 4 million for the trading week of
August 13-17 compared to USD 1.4 million the previous week.
The trading volume for August 17 reached 1,183,356 shares (in
659 trades) for a total value of USD 4.16 million. Stock
prices for the week rose 44 points or eight percent.

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Rising Confidence/Lingering Problems
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4. (SBU) PSE Chairman Hasan Abu-Libdeh announced August 13
that the PSE had decided to reinstate the plus or minus five
percent price range limit on daily trading. (Note: The PSE
narrowed the price range to plus or minus three percent in
March 2006 in an effort to stem volatility in the market.
End Note.). In separate comments to the press August 16,
Abu-Libdeh asserted that about 35,000 investors hold about
USD 1 billion in Palestinian securities. He added that 40
percent of the funds invested in the PSE come from abroad.



5. (SBU) In his recent public comments, Abu-Libdeh
attributed the PSE's six-month decline to the political
situation, not just to the Palestinian Legislative Council
(PLC) elections but also to internal tensions within Fatah.
He added that the lack of adequate laws and regulations had
also played a role, noting that the PLC had yet to approve a
presidential decree allowing companies to purchase their own
stock. As a consequence, the PSE is examining current laws
and regulations in an effort to improve the investment
climate.

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Pressure Rising on Unlisted Companies
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6. (SBU) Capital Market Authority (CMA) Chief Executive
Officer Dr. Atef Alawneh announced August 8 at the Ramallah
Chamber of Commerce that the CMA will start taking strict
measures to enforce the provision of the Securities Markets
Law obliging all joint stock companies be listed on the PSE
and regularly disclose their financial statements. Alawneh
asserted that there are about 50 companies that need to join
the 31 currently listed on the PSE. He added that
shareholders of unlisted companies have complained that, in
the absence of financial reports, only company board members
know the true financial status of these companies. Alawneh
warned that legal actions will be taken against shareholding
companies failing to adhere to the law.


7. (SBU) In a meeting with Nablus business leaders August
16, Abu-Libdeh stated that the PSE had recently blocked
trading in the shares of one listed company until the
required financial statements were provided. (Note: Local
press accounts identified the non-compliant company as the
Arab Company for Cement Products. End Note.) Abu-Libdeh
said that as many as six companies will be listed with the
PSE by the end of the year, starting with the Commercial Bank
of Palestine.


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PSE Still Not Listed
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8. (SBU) Abu-Libdeh also advised August 8 that the PSE is
withdrawing its request to the Ministry of National Economy
(MoNE) to be registered as a shareholding company. (Note:
The PSE was incorporated as a private shareholding company in
1995 with the Palestine Development and Investment Company
(PADICO) as a major investor. End Note.) Abu-Libdeh
explained that the request had been with the MoNE for four
months due to "technical and bureaucratic measures." A
senior MoNE employee, however, told Arabic-language daily
Al-Ayyam that the delay was due to four companies having been
listed on the PSE without having provided the required
financial statements. Abu-Libdeh dismissed this "excuse,"
asserting that the MoNE should be able to grant PSE's request
while setting deadlines by which time the negligent companies
must provide the necessary financial information. The PSE,
CMA and MoNE are reportedly seeking an appropriate solution
to the PSE's listing request, according to Al-Ayyam.
Abu-Libdeh told reporters August 16 that all companies listed
on the PSE had now presented financial disclosure documents.

DUFFY