Australia/Israel & Jewish Affairs Council

Investors find their fortunes in Israeli, Palestinian stock markets

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While peacemaking visionaries talk about a future Israeli-Palestinian peace dividend - the concept that peace between Israelis and Palestinians will usher in a new era of mutual prosperity - the two peoples aren't waiting, as both Israeli and Palestinian stock markets continue to impress.

On February 20, the financial news organisation Bloomberg named Israel's stock market number one in the world in its Riskless Return Ranking - a measure of the safest investments for investors over the past decade.

"Israel, under threat of war from its neighbours since being founded in 1948, produced better risk-adjusted returns than all other developed stock markets in the past decade as the technology-driven economy attracted global investors.
The Bloomberg's Riskless Return Ranking shows the Tel Aviv TA-25 Index returned 7.6 percent in the 10 years ended yesterday, after adjusting for volatility, the highest among 24 developed-nation benchmark indexes. Israel beat Hong Kong's Hang Seng Index, the next-best market with a risk-adjusted gain of 6.7 percent, and Norway, which had the highest total return."

The article further noted that the country's economy will grow 3.2 percent in 2012, according to Finance Ministry projections - almost three times the 1.2 percent average for G10 countries.

On the same day, while credit ratings for most of Israel's European trading partners are being downgraded, a report emerged that Israeli Finance Minister Yuval Steinitz has approached Moody's Investors Service (MCO), asking it to consider raising the country's A1 credit rating.

The article noted that Standard & Poor's raised the country's credit rating for the first time in four years in September, lifting Israel to A+, in line with Chile and Slovenia.

Israel's resilient economy, which has thrived over the past 15 years despite terrorism, the second intifada, the 2006 Lebanon War, the 2008-2009 Gaza operation and countless missile attacks has analysts scratching their heads.

Some believe that it is actually Israel's relative isolation which has helped protect its economy from the troubles that have affected some of its trading partners in Europe.

The tension between Jerusalem and Teheran over Iran's nuclear program has not fazed investors, the Bloomberg article said, noting that Israel's economy has historically shown stability even during times of fighting.

"It will take a lot more than a simple military action to keep the stock exchange from working," Gilad Alper, an analyst at Excellence Nessuah Investment House Ltd. in Tel Aviv, said by telephone. "The last full-scale war that we had here that involved huge parts of the economy was in 1973. Since then, everything has been relatively small."

Meanwhile, the Palestinian Authority may find it increasingly difficult to portray itself as an economic victim, while its stock exchange has been widely recognised as the Arab world's top performing market over the past few years, as the New York Times reported on Wednesday.

The stock market that has most consistently ranked as a top performer in the Arab world over the past few years has not been that of Dubai or Cairo, but the Palestine Securities Exchange in Nablus on the West Bank. During the Arab Spring uprising last year, the financial crisis in 2008 and the regional boom year of 2005, the exchange outperformed most regional rivals as listed Palestinian companies reported hefty profits.
Analysts say investor interest in public Palestinian companies has grown over the past two years, with many new listings on the exchange at a time when initial public offerings have remained at a standstill elsewhere in the Middle East. New venture capital funds are investing in companies in Palestinian territories that have turned profits despite the challenges of their operating environment.

 

Again, this reality suggests that, despite the lack of progress on the peace process, Israeli-Palestinian cooperation to ease security restrictions, as well as the reformist efforts of Palestinian PM Salam Fayyad, are making a concrete difference to the lives of Palestinians. Moreover, hopefully by encouraging the growth of a middle class and giving Palestinians a taste of what statehood and an end to the conflict could mean for their lives economically, hopefully these efforts are laying the groundwork for a future two-state resolution.

 

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