LOW LIQUIDITY AND NEW SPHERES FOR BROKERAGE

SERVICES IN PALESTINE

RUBA MASROUJIUNITED SECURITIES COMPANY

PALESTINE

ECONOMIC INDICATORS IN 2011:

Population in Palestine: 4.16m GDP in Palestine: $6.3B with 8% growth. Unemployment Rate: 21% Poverty Rate: 25.8% Palestinian Investments Abroad: $5.2B Foreign Investments in Palestine:$4.5B Bank Deposits: $7.2Billion.

POLITICAL SITUATION:

Palestine is now divided into two areas ; West bank and Gaza strip with two different authorities.

For the past couple of years no big changes except for the recognition of Palestine State in the UN in November 2012 - still no changes on ground.

ECONOMIC SITUATION Government and civil society are relying

more on External Funds. government debts to Private sector are

increasing. private sector and government debts to

Banking sector are increasing which makes the economic situation quite complicated.

No cash to run day to day operations in many sectors

BROKERAGE BUSINESS IN PALESTINE 8 brokerage firms investing around $28m,

employing around 200 employees

Commission of brokerage firms is .0047$, brokerage firms are making losses although commission is high relative to regional markets.

Services offered right now are considered limited.

BROKERAGE BUSINESS IN THE REGION: 2011

Stock Exchanges

Listed companies

Brokerage companies

Market capitalization in US$

Trading Volumes

Average Trading/ brokerage firm in US$

PEX 48 8 2.7B 365 M 40M

ASE 244 62 27.2B 25.3 409MDFM 67 71 49 B 8.7B 122 M

EGX 466 148 56 B 24.5B 165M

Qatar 43 11 125B 23B 2B

Saudi 141 30 338B 292B 9.7B

WHAT IS LIQUIDITY?

Liquidity in general refers to how quickly and cheaply an asset can be converted into cash.

Liquidity in financial markets is the Turnover on the stock or the ability of investor to trade on specific stock or specific stock exchange with relative ease with minimum price disturbance.

LOW LIQUIDITY IN PEX

Situation Analysis.Look at Market Capitalization, Market

Turnover, Free float in PEX to study the case.

Comparison with other neighboring Stock exchanges.

PALESTINE STOCK EXCHANGE FACTS: Our listed companies are the pillars of the Economy,

employing more than 10000 Employees, contributing to around 20% of GDP, with long history of sustainable business and annual returns.

Around 65% of listed companies are Profitable

Average Return on Investment in 2011 was 6.09%.

70% of the listed companies are traded below Book Value

However, limited sectors. All the region is facing the same symptoms.

MARKET CAP., TRADING VOLUMES AND FREE FLOAT IN PEX: 2011• Market Capitalization in 2011 was $2.7B• Trading Volume was $3.5M.• Free float is around 40% of the total market

capitalization• Around $1.08b of share value is available for

trading.• Trading is around 30% of this value.• That means we still have an opportunity to

make more trading in the stock exchange.• If we see the below recommendations

COMPARING WITH REGIONAL MARKETS: TURNOVER/MARKET CAP.

Year

Market

2008 2009 2010 2011

PEX 55.8% 21% 18.4% 12.8%

ASE 74% 40% 27% 15.6%

DFM 131% 81% 44% 24%

EGX 110% 84% 20.50% 34%

THE EFFECT OF PRICE ON LOW TRADING:

2007 2008 2009 2010 2011

Number of shares

traded 299,422,814 339,168,807 238,877,373 230,516,370 184,544,375Value of shares traded 813,469,091 1,185,204,211 500,393,398 451,208,528 365,648,216

2007

2008

2009

2010

2011

0200,000,000400,000,000600,000,000800,000,000

1,000,000,0001,200,000,000

Number of shares tradedValue of shares traded

TRADING VS. BANK DEPOSITS:

Market Capitalization $2.7Billion.

Turnover in PEX till 11/2012 is around $220million.

Trading volume is Decreasing for the past years

Return on Investment in PEX was 6.97% in 2011.

Bank Deposits till date is $7.2 Billion.

Bank deposits are increasing for the past couple of years.

Return on Investment for depositors in Banks was around 3% in 2011.

Stock Exchange Banks

ALSO………… Palestinian Cash and Assets invested abroad at the

end of 2011 is around $5.2B, so there is a potential to attract more Palestinian wealth to Palestine.

Palestinian money in Diaspora too might be invested in PEX if they see real opportunity or value.

THAT MEANS: People trust banking system in Palestine and keep their money un-invested although lower return.

So, Banks must play a vital role in the stock trading

process.

NEW SPHERES FOR BROKERAGE SERVICES IN

PALESTINE:

1. Introducing new products in the market

2. Introducing new services in the market which needs an effort from all stakeholders and not from brokerage firms alone.

3.Integrating Banking services to Brokerage services.

4. Work on mergers and acquisitions between brokerage houses in order to benefit from synergies and work more powerfully.

5. To have all kinds of certificates available for financial business in Palestine such as portfolio manager, financial analyst etc..

6. Work on the Pension plans and funds in the country as a whole and that is considered a main key economic motivator.

7. Better governance and transparency which better attract Palestinian Diaspora as well as regional and international investors and funds to trade in Palestine.

THANK YOU ALL