Mutiny At The Cyprus Stock Exchange

Lisa Ugur, Tax-news.com, London

04 August 2000

The Cyprus parliament met on Wednesday to vote through a raft of legislation to boost the ailing stock market's prospects. The proposed legislation, which includes speeding up the process of allowing companies to list on the Cyprus Stock Exchange (CSE), and the laying down of a minimum number of shares companies going public need to offer during the initial public offering, perhaps came a little too late for some investors.

The CSE has been in dire straits for some time now, but it must truly be in a terminal condition to incite physical violence. Just hours before the government met, brokers were targeted by two bombs which wrecked a stockbroker's car and badly damaged a brokerage. The separate blasts came just days after small investors attempted to storm the CSE to protest against plummeting share prices. Whilst the Cyprus police are not committing themselves to linking the bomb blasts, in which no one was hurt, to the CSE's poor performance, they did confirm that another broker's car had been destroyed in an earlier attack and that the stock market has been disrupted by bomb threats.

Thousands of Cypriots who mortgaged their homes, cashed in savings or took out large bank loans last year to buy shares as the market rose by 688 per cent now fear financial ruin. Since January it has dropped 40 per cent and many analysts expect further falls.

Grievances mainly emanate from small investors, who claim that small players are at the mercy of brokerage firms and large-scale investors are manipulating the market for their own gains. By the same token, those under attack retort that small investors treat the exchange like a casino and have little knowledge of share dealing. One broker said: 'Everybody knows that gambling is rife in Cyprus and most of these people saw the chance to make a fast buck. But while they knew they were gambling, they didn't believe they could lose. Now reality has replaced dreams.'

The staggering success of the CSE in 1999 created numerous millionaires. At the beginning of 1999 only a very small percentage of households owned shares - around 7 per cent - but by December this figure had increased to a hefty 30 per cent. Repeated government warnings that the bubble would burst were ignored and a culture of obsession grew up around the stock market.

But now Cypriot investors have fallen back to earth with a distinct bump. Protests and demands for government intervention to halt the crisis are commonplace and last week mutated into an attemped storming of the CSE, with investors appeased only when management agreed to see a delegation.

An unnamed commentator said that anyone profering bad news concerning the stock exchange put himself at risk of reprisals: "If you talk up the market and it goes down, you get the blame," one said. "If you're preaching gloom and doom, then you are guilty of causing the crash. I know it's ridiculous, but this is Cyprus and not one of the world's financial capitals.'

Opinion is divided on where the CSE goes from here. Some analysts say worse is still to come, with investors unable to repay loans or recoup their investments, leading to inevitable bankruptcies. However, Pambos Papageorgiou, head of research at Cyprus College, believes the situation has come about to counter last year's phenomenon: 'Some prices are ridiculously low. What we are experiencing is a severe correction of the excesses of 1999," he said.

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