Confident Cypriots scramble to invest at home

One gardener became so rich he tried to buy his boss's house. An insurance salesman just retired after making nearly $2 million since April. And secretaries have made five or six times their annual salaries in just a few months. Such stories have become the staple of conversation at dinner parties and cafes in Cyprus as stock market mania grips the relatively well-off Greek Cypriot side of the divided Mediterranean island.

While all eyes have been on the US stock market's meteoric rise, other lesser-known markets in the world are skyrocketing too, such as Egypt's and Brazil's. But nowhere has there been a bigger boom than in Cyprus, which has registered spectacular gains of 700 percent since the beginning of the year.

Encouraged by a favorable economic climate and lured by the prospect of riches, at least 1 in 4 adults is now playing the stock market. In just five months the market's capitalization has doubled to nearly $20 billion, about twice the island's gross domestic product. Increasing the attraction of shares is the fact that unlike property, no capital-gains tax has been levied on profits, although parliament was due to vote yesterday on a 5 percent levy.

"It's a generalized obsession," says Nicosia psychiatrist Yiangos Mikellides. "It's like the American gold rush. People hear these stories about others making a fortune on the market, and they don't want to miss out."

So huge is the interest that a local television station broadcasts live the 60-minute morning trading sessions while the other channels have at least one daily talk show devoted to the market. So great is the demand that the market has had to close on four occasions since July, totaling 30 working days, to allow brokerages to clear a backlog of unprocessed transactions.

The new wealth generated by windfall profits is on proud display on an island that was already relatively well off with per capita income of $14,000. BMW has reported a 40 percent increase in sales since July, while sales of Mercedes-Benz automobiles have increased by 30 percent this year.

Economists say there are good economic and political reasons the market has performed well this year. It has been a bumper year for tourism, with well over 2 million foreign holidaymakers visiting southern Cyprus, which is home to about 640,000 Greek Cypriots. There are also expectations that leading local banks, which make up the bulk of the market's capitalization, will soon be listed on the much larger Athens stock exchange, which has a capitalization of $179.9 billion. And Cyprus's negotiations for admittance to the European Union are proceeding smoothly.

Politically, there has been relative stability since President Glafcos Clerides decided a year ago against deploying Russian-made S-300 surface-to-air missiles. And earlier this month, the international community, spearheaded by the United States, launched a concerted effort to solve the long-running Cyprus problem. Mr. Clerides and the Turkish Cypriot leader, Rauf Denktash, held indirect talks in New York with a second round scheduled to begin in Geneva on Jan. 27. The aim is to reunite the island under a two-zone federal system.

Boosting hopes of a settlement is the recent rapprochement between the motherlands, Greece and Turkey. Ties warmed when each country offered humanitarian aid when both were afflicted by earthquakes earlier this year.

Even so, some economists fear worry share prices are drastically inflated and say a crash could be in the offing. This month has already seen a stiff correction, with share values down by more than 15 percent, although brokers say profit taking rather than a lack of confidence is behind the drop. Many investors are thought to be positioning themselves to buy when new companies are floated in coming weeks. Currently, there are about 60 companies listed on the exchange.

Still, doomsayers are struggling to be heard. "It's completely berserk, completely unreal. You've got companies that are nearly closed down but whose shares have rocketed," says Marios Clerides (no relation to the president), a senior economist based in Nicosia. Productivity in the general economy, he suspects, is declining because employees are slinking off to trade or to follow the market on television during working hours. The Ministry of Education recently launched an investigation into reports that secondary-school teachers interrupted classes to chat to their brokers on cellular telephones and check share prices on the Internet.

Sociologists, meanwhile, are concerned that the lure of windfall riches could undermine Cypriots' traditional willingness to work long, hard hours to provide for the long-term security of their families. "The danger is if people start believing that there is no need to work hard because it has been so easy to make quick profits," says Nicos Peristianis, a leading Cypriot sociologist. "But I believe this is only a temporary phenomenon because of the market's performance this year."

At the same time, he believes the bull market has benefited both the economy and society. "Businesses here used to be mostly family-run. The advantage with going public is they become much larger, more accountable, the management becomes more professional and the whole operation becomes more rational."

Unsurprisingly, the authorities have tried to dampen market mania. The Central Bank has urged commercial banks to tighten credit facilities in regard to "market speculators and gamblers." Daily trading sessions have been shortened from 90 to 60 minutes, and a ceiling has been placed on the number of transactions.

Yet the enthusiasm has continued. When one financial services company went public in November, the demand for shares outstripped availability by 600 times.

Some politicians have warned that the public regards the exchange more as a casino and that many are looking for short-term profits rather than a long-term investment. Comments one civil servant, "I've seen people at the exchange cheering on companies they've invested in like they are at the horse races."

(c) Copyright 1999. The Christian Science Publishing Society