Palestinian Stock Exchange Finally Receives Frontier Market Status

After two decades, the Nabulus-based Palestine Exchange has been recognized as a frontier market by index provider FTSE Russel.

The status, which came into effect in September, is a major achievement for the exchange, which has a market capitalization of $3.3 billion. While none of the 49 publicly traded companies have been granted the same frontier market status, the latest move is widely considered a precondition for their inclusion, according to Bloomberg.

The exchange is protected by steel plates and concrete walls, which reflects the volatile political state of the Palestinian territories – or what’s left of them. Palestinian companies continue to struggle with the stigma of being located in one of the world’s most unstable regions. For local investors, international recognition finally means that Palestinian companies will have a better opportunity to emerge from the shadows of occupation and militancy.

“Our market might be small, but it’s definitely operated with the best international practices, and it’s actually one of the most open and liberal exchanges in the Middle East,” Chief Executive Officer Ahmad Aweidah told Bloomberg TV in an interview. Aweidah said the index aims to become recognized globally, including MSCI Inc.[1]

In 2015, Palestine was officially recognized as a state by 136 of 193 United Nations member states. Israel, which currently occupies Palestinian territory in the West Bank, was among the countries that did not recognize Palestine’s statehood.

Palestinian territories lack basic infrastructure, water resources, national sovereignty and an airport, making it difficult for the newly recognized exchange to grow. However, Bloomberg notes that the volume of trades on the Al-Quds Index over the past six months is more than double Morocco’s main stock index. The Palestinian gauge has gained 3.2% so far this month, the highest in the Middle East and North Africa.[2]

While not expected to draw significant regional or global investment, the recognition of the Palestine Exchange as a frontier market is a step in the right direction. In particular, it will improve local companies’ chances of getting notices in a highly competitive global market.

At least on paper, the Palestinian economy has shown signs of progress recently. Gross domestic product (GDP) expanded 8% in the first quarter compared to the previous year. That follows growth rates of 6.1% in 2015 Q4 and 9.6% in Q3. However, growth rates in the Palestinian Territories are extremely volatile, hovering between a high of 26% in Q3 2013 and a low of -21.6% in the fourth quarter of 2006.[3]

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[1] Yousef Gamal El-Din and Fadwa Hodali (September 21, 2016). “Palestine Gets FTSE Frontier Market Status for First Time.” Bloomberg.

[2] Yousef Gamal El-Din and Fadwa Hodali (September 21, 2016). “Palestine Gets FTSE Frontier Market Status for First Time.” Bloomberg.

[3] Trading Economics. Palestine GDP Annual Growth Rate 2001-2016.