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. Last Updated: 07/27/2016

Russian Cash Feeds Cyprus Stocks

NICOSIA, Cyprus -- Prices are sizzling on Cyprus' tiny stock exchange and life is bubbling on this normally sleepy Mediterranean island.

With the market index up nearly 700 percent over the past year, stock trading, which used to be of interest to only a few hundred people, has become an obsession for many of the 700,000 Cypriots. It's gotten to the point that the Ministry of Education had to reprimand school teachers for interrupting classes to speak to their brokers on their cellular phones or check prices on the Internet.

Television carries live coverage of the 60-minute trading session Monday through Friday and each of the island's five stations has at least one daily talk show devoted to stocks. Many coffee houses - perhaps the island's most frequented establishments after Orthodox churches - are now extensions of the market during trading hours, with self-styled pundits watching prices on television and phoning in orders to brokers as they sip coffee.

A recent poll by the newspaper Philelftheros found about a third of those surveyed are playing the market with investments of at least 10,000 Cypriot pounds, or just over $17,000. Twenty percent of the 614 people polled said they had five to 10 times that much invested.

"Cypriots have become richer by some 10 billion pounds [$17.4 billion] in a matter of months," said Neofytos Neofytou of AAA United Stockbrokers. "Just think of that, when our entire tourism industry brings in one billion [pounds] a year."

Sixty Cypriot companies are traded on the exchange, with banks - many of them fattened with cash from Russian businesses keeping their assets offshore - accounting for a little less than half the value of shares listed. In just the last four months of 1999, the total value of those shares soared from $15.1 billion to $24.4 billion, or about three times the island's gross domestic product.

Economists attribute the market's initial surge to relative political stability onthe island, which has been divided into ethnic Greek and Turkish zones for a quarter century, and to the prospect of Cypriot banks being listed on the larger Athens stock exchange this year. The rise drew in new investors and demand pushed prices up even more.

While toasting the market's success as proof of its economic reforms, the government has tried to brake investor enthusiasm. But shortened trading hours, a ceiling on the number of daily transactions, tighter regulations on speculators and repeated cautions from the Central Bank had little impact.

Trading finally lost some steam as investors worried about whether the government would introduce a capital-gains tax on stock trading profits, causing the market index to drop 20 percent in the final weeks of 1999.

But after parliament decided to tax only profits of more than $61,000 on 1999 trades and leave 2000 and 2001 trading completely free of tax, the index bounced back 5 percent on the year's last trading day.

Still, some investors are treading more cautiously now. Andreas Papaioannou, a 59-year-old retired government employee who invests in bank shares, doesn't think the market can continue to perform the way it has for much longer. "I keep saying to people who ask me why I don't put more money in the market that it is bound to come crashing down one day," he said. "I don't want to have loads of money tied there when it happens."

Such sentiment is far from the rule, though. "The party will not end unless all big institutional investors and the insurance companies decided to realize their profits through massive sales," said Elias Kazanos at S.B. Unigrowth, a Nicosia brokerage.

Michaelis Ellinas, a 27-year-old bank employee, earned enough on the market since the summer for vacations in Athens, London, New York and Miami. But for now, he's staying out. "I am just taking it easy until I see a good opportunity to get back in," he said.