PALESTINIAN STOCK MARKET, LACKING POSITIVE

C O N F I D E N T I A L JERUSALEM 001874 SIPDIS SIPDIS NEA FOR FRONT OFFICE; NEA/IPA FOR GOLDBERGER/SHAMPAINE/BELGRADE; NSC FOR SINGH/WATERS; TREASURY FOR SZUBIN/HARRIS/LOEFFLER/NUGENT/HIRSON E.O. 12958: DECL: 09/05/2017 TAGS: ECON EFIN KWBG SUBJECT: PALESTINIAN STOCK MARKET, LACKING POSITIVE POLITICAL CUES, CONTINUES DOWNWARD DRIFT REF: JERUSALEM 895 Classified By: Consul General Jake Walles for reasons 1.4 (b) and (d). ¶1. (SBU) Summary: The Palestinian Securities Exchange (PSE) is down more than 25% for 2007. Analysts say a lack of positive political signals is holding the market down. Efforts are underway to boost investor interest in the PSE through such measures as relaxing margin account restrictions, forming PSE-based mutual funds, and increasing advertising and promotions. End summary. Al-Quds Index Continues to Slide -------------- ¶2. (U) The PSE's Al-Quds Index extended its 2007 decline through August. The market suffered a twelve-day losing streak in mid-August, and though it recovered slightly in the last week of August, it closed down 7% for the month. PSE, Once a High Flier, Makes a Hard Landing -------------- ¶3. (SBU) Two years ago the PSE was one of the best performing markets in the world. The Al-Quds soared by more than 300% in 2005, ending the year at 1,128 points. Hamas' victory in the January 2006 elections prompted many investors to pull out, causing the market to shed half its value by the middle of 2006. The Al-Quds traded in the 500-600 point range through the rest of 2006. This year, a slow but steady bear market has cost the Al-Quds another quarter of its value. It closed Thursday, September 6 at 427. Market Adrift, Awaiting Political Cues -------------- ¶4. (C) PSE CEO Hasan Abu Libdeh told Econchief on August 28 that the Palestinian private sector is still taking a "wait and see" stance toward PM Salam Fayyad's government. Abu Libdeh noted that the PSE rose nearly 13% within a week of Fayyad's June 17 swearing in, but has since declined steadily. Samir Zreiq, General Manager of Sahem Trading and Investment Company, and Jeries Qassis, General Manager of United Financial Market Company, told Econoff on August 30 that the PSE lacks direction and is awaiting further political developments. Zreiq believes the Palestinian private sector generally supports Fayyad's government, but "outsiders are afraid to invest because of the political situation." Qassis agreed, calling the "law and order problem" a constant drag on the PSE. The market, said Qassis, is "waiting for events in the peace process." ¶5. (C) Zreiq and Qassis asserted that restriction of West Bank access and movement is a key obstacle to improving the local business climate and market performance. Easing movement would send a very positive signal to the market, they said, and would help the PSE turn around relatively quickly, especially if coupled with positive results from upcoming international meetings on the Israeli-Palestinian conflict. PSE Looking to Stimulate Investor Interest -------------- ¶6. (SBU) Zreiq and Qassis described initiatives to attract more foreign investors: holding a major Palestinian capital market conference in Ramallah (September 8-9),removing restrictions on margin accounts, establishing PSE-based mutual funds, and increased advertising. Advertisements promoting the PSE will soon air on Arabic-language cable channels in the United States. The PSE is also considering promotional "road shows" to neighboring countries and the United States. "What we really need," said Zreiq, "is investors' money, not donors' money." WALLES