Rasmala Investment Bankis the latest financial institution to launch a Palestinian-focused fund even as it is cutting costs elsewhere as part of a debt restructuring programme it announced in November.

The bank, based in Dubai, is hoping to raise US$115 million (Dh422.3m) for the fund, which will target stocks listed on the Palestine Stock Exchange.

The announcement yesterday came just weeks after Rasmala shut down its retail brokerage and main private equity fund as part of its restructuring. But Anwar Abu Sbaitan, the chief executive, said the decision to launch the fund had "nothing to do" with the closure of those units.

"It was a hard fund to get registered because Palestine is scrutinised very carefully but we've been working on this for six months," Mr Sbaitan said. "It's not something we came up with yesterday."

The Palestine Investment Fund (PIF), the largest investor in the Palestinian Territories, put forward an initial $15m to back the fund and has committed to match dollar-for-dollar other investments up to $50m.

The PIF, with $800m in assets under management, is the Palestinian Authority's primary vehicle for bringing in foreign investment to the West Bank and the Gaza Strip.

There are 46 equities on the $2.9 billion Palestine Stock Exchange, although the "optimal portfolio" for Rasmala would include up to 13 of the best stocks.

The Arab-Israeli conflict, which has ravaged the economy of the Palestinian Territories, has put the domestic market more on the map for its delicate political situation rather than its earning potential.

But amid the upheaval elsewhere in parts of the Arab world it has emerged as one of the most politically stable in the region.

Top fund managers have voiced support for the market,with the veteran emerging markets fund manager, Mark Mobius of Franklin Templeton, last year calling the Palestinian Territories a "viable market".

The Palestinians "are very entrepreneurial people. While two million people may not present a great market you have to take into account their ambition", he told Citywire, the London-based financial magazine. "The diaspora around the world is also equal to the whole of Palestine."

Other market commentators who have conducted business in the Palestinian Territories agree.

"There is a strong growth outlook for Palestine, and while there are potentially political issues, the actual dynamics of the underlying economy are good," said Michael Bevan, HSBC's head of equity capital markets in the Middle East and North Africa.

He said the young population, which is also highly literate, made the territory a good target for investment. HSBC was the sole bookrunner for the initial public offering of Wataniya, the mobile telecommunications operator for the Palestinian Territories.

Wataniya, which is 53 per cent owned by Qatar Telecom (Qtel) and 47 per cent by the Palestine Investment Fund, had offered 38.7 million shares at the end of last year, priced at $1.30 a share. The offering was one and a half times oversubscribed.

Mohammed Mustafa, the chairman and chief executive of the fund, said the Palestinian Territories should be considered a "special" market.

"[The political situation] makes things a bit more challenging but we're one of those special markets where fund managers are taking high risk for high returns," he said.