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. Last Updated: 07/27/2016

Cypriot Exchange Defies Gravity

NICOSIA, Cyprus -- Whatever you say about the Cyprus Stock Exchange, just don't mention the word bubble.

It is a dirty word for thousands of new investors who have descended on the island's bourse in recent months, pumping up prices by more than 750 percent this year. When one international publication mentioned the word last month most investors were left spluttering angrily.

"Some prices may be overdone, sure," said an investor as he jostled for space on the cramped trading floor of the small exchange in Nicosia.

"But don't you start repeating all this foreigners' talk about the market being a bubble. This market has good prospects," he said.

The Cyprus Stock Exchange has enjoyed an unprecedented rally and has attracted an army of new investors in the past eight months.

Once perceived as the exclusive domain of big business, ordinary Greek Cypriots have begun clamoring to put money into the market, switching away from traditional forms of investment like real estate that offer paltry returns compared to the booming bourse.

"It is people's capitalism," said Neophytos Neophytou, managing director of United Stockbrokers.

Brokers, who this time last year were urging the market to spend on promotion campaigns to lure in elusive investors, have found themselves fighting them off.

Now some are forced to set minimum limits on transactions they will accept and face repeated suspensions from the bourse for failing to complete back-office tasks in time because of the workload.

Emerging from 2 1/2 years of obscurity, the market was given a prod late last year when the government canceled delivery of Russian surface-to-air missiles, a real concern among the financial community because Turkey threatened to prevent their arrival, raising the specter of military action.

That cloud gone, the market was further buoyed by a 40 million Cypriot pound ($72 million) takeover of three insurance firms by a local bank.

Euphoria is now at its peak on expectations Cypriot banks, the bulk of the 11.08 billion-pound ($19.7 billion) capitalization on the 53-company bourse, will secure parallel listings on the Athens bourse early in the new year.

The three-year old market has, however, paid for its rally with accumulations of paperwork forcing it close repeatedly.

"We have interest from one large institutional investor from overseas but they have made it clear that they would not be interested in actually entering the market until there is an efficient settlement system," the manager of one leading Nicosia brokerage said.

"But if anything, the performance has managed to heighten awareness about Cyprus internationally," he added.

Repeated delays in issuing share certificates to investors forced the market to shut down for a whole month last September.

A clearing system for transactions is expected to be up and running by February. As a stop-gap solution, partial dematerialization will be introduced in late November, replacing a cumbersome process of issuing certificates for each transaction with a simple statement of account.

Some analysts feel the surge in prices is well founded, the result of a stock-hungry public looking for extra cash out of the taxman's reach.

Others, however, say the rally is overdone.

"This is not rational," one trader said. "It is a steamroller that hasn't hit a rock yet."

The much larger and more developed Athens Stock Exchange is usually used as a comparison.

"It is very natural for people to compare," said Stavros Agrotis, a senior trader of the Cyprus Investment and Securities Corporation. He said the rise cannot be looked at in isolation.

"A very big part of the rise is justified and a correction to the decline in previous years," he said.