When stocks move, the economy will move
E DII TO RII A L
The general rule is that what drives a healthy stock market is the volume in shares traded and not the share prices or the general index. This was proven all too true since March last year after Laiki Popular (CPB) was wiped off the face of the Cyprus bourse and Bank of Cyprus (BOCY) was suspended, indefinitely, depriving the CSE of 80% of its turnover.
Since then, we have seen stock trades reach the bottom of the pit, with volumes dropping or falling below CSE levels of ten years ago and even two decades ago when the Exchange was reborn as a proper institution, having been an OTC market under the KEVE Chamber management.
What is interesting is that in more than a year and a half, we have just had the first week where volume picked up to a steady daily average of around 200,000 euros, still pitiful, yet an indication that investor interest is picking up.
Supposedly a gauge of the economy, the confidence in the CSE is also boosted by an improvement in fiscal economics and the Troika of international lenders promising to give us some 453 mln euros more from our bailout purse, seeing as we finally (yawn, yawn) voted through the foreclosures bill.
The CSE itself will never recover until BOCY starts trading on the board again, which experts place at a cap of 24c, the private placement price offered to institutions, but for the time being expected to trade at far below that at opening. There will be pressure from fund managers and cash-strapped retail investors to offload their holdings and cash-in their losses, with fewer hungry and cash-rich investors sitting on the sidelines waiting for bargains to buy.
The CSE and the watchdog CySEC have been too slow and too late to pick up on trends and novelties, undecided on products and services, while dragging their feet on introducing new regulations that would herald in new players, new listings, IPOs and products such as derivatives, mutual funds, etc.
Cyprus has a unique opportunity to list and price commodities, ranging from the traditional farm futures to new products such as shipping cargo contracts or even high-tech items such as Forex funds, virtual currencies and others, that will pass us by and be picked up by other jurisdictions if we don’t move fast.
Talk of Cyprus attracting Islamic banking or sukkuk funds are a bit far-fetched, as no manager in his right mind would list such a product in a slowmoving market, with third-world volumes.
The sooner the primary banking stock resumes trading and we attract other listings, the faster money will start flowing back into the market, investors will pick up or sell stocks and companies will resort to IPOs to raise cash, due to the absence of any real funding from the banks.