Cyprus Stock Exchange Off To The Races Again?

by Harry Charalambous, Tax-News.com, Nicosia

02 May 2001

The Cyprus Stock Exchange (CSE) is displaying some of the (very irrational) exuberance that caused it to rise by 700% in 1999, before crashing during 2000 to less than one third of its peak value.

The bullish atmosphere in Nicosia has been sustained for ten days, with the General Index closing yesterday up 1.75% at 204.24. So far in April the CSE Index has gained 17.56% on trading volumes which are up two-thirds on a month ago, although still far behind the levels seen two years ago, when punting on the CSE money machine became almost a national sport. Thousands of people mortgaged their homes or borrowed money to take part in what seemed the unstoppable rise of the market, which was accompanied by closures and meltdowns due to the massive load of transactions - but most of them got caught when the market inevitably crashed, and they've spent the last eighteen months licking their wounds.

Ever since the crash, the Government, which rather unfairly got the blame for allowing the market to get out of hand in the first place, has been trying to reorganise the CSE to limit a recurrence of 1999's mania. Various legislative solutions have been proposed, without a clear result - a law making its way through Parliament will reorganise the structure of the market to make its governance more representative, but Parliament can't make its mind up on whether to ban credit-based transactions, one of the Government's main proposals to limit the scope for excesses.

The Government also invited a Greek stock market expert, Demetris Tsimbanoulis, to report on how the market should be reorganised, and many of his (largely technical) ideas are gradually going to be put into practice. He is rightly against a ban on credit, and also against the Stability Fund which was recently announced, to be financed through a transactions tax. These types of 'solution' are typical of the dirigiste mentality of the Government, which doesn't have a profound understanding of market principles, and tends to react to crises by nannying people rather than adjusting structures to be better balanced.

The market's current behaviour is surprising most analysts, who expected a technical correction at the 195 level. A level of 200 is thought to represent 'fair value' for today's market, although the CSE has paid little heed to such indications in the past. The sudden about-turn in market sentiment is most likely to reflect a return to the market of some of the investors who have been staying on the sidelines during the past year of turmoil.

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