Markets fail to react to missile decision

By Hamza Hendawi

PRESIDENT Glafcos Clerides’ controversial decision not to deploy the S-300 missiles in Cyprus appears to have failed to impress the island’s stock market yesterday, but the move is likely to bring back a measure of confidence to local investors and boost consumption during 1999.

The official Cyprus Stock Exchange all-share index shed 0.53 per cent at the end of yesterday’s trade to settle at 90.64 on trade worth £2.84 million.

“You know how it is in the market: Buy the rumour and sell the fact,” said Neophytos Neophytou of AAA United Stockbrokers. He was alluding to the reports which had swirled around for weeks that the missiles would not come to Cyprus and led traders to discount the final decision on the issue.

The Tuesday night announcement that the Russian surface-to-air missiles will instead go to the Greek island of Crete may have also failed to influence the bourse because it interfered with end-of-year market rituals. These include liquidating positions and rearranging portfolios in what traders call “window dressing” to beautify end-of-year results.

The S-300 announcement also coincided with the much-heralded market début yesterday of Orphanides Supermarkets and came a day after another stock, that of printers Cassoulides & Sons, began trading.

The two shares have attracted the attention of traders and yesterday combined for about 30 per cent of the bourse’s trade.

“You cannot count on stock market behaviour, but I believe the decision not to bring the missiles will have positive results on the economy starting from the second-half of 1999,” said Yiannis Tirkides, the Popular Bank’s chief economist.

“People will feel comfortable to invest more, build houses and buy more durable goods.”

But Tirkides warned against expectations of an economic boom following the removal of the tension generated by the missiles deal since its announcement in January 1997. The economy, he said, continues to suffer from ills which are not related to political developments.

A boost in consumption and in local investment would be more than welcome developments in 1999. The economy is expected to slow down next year after a 1998 growth which some economists have revised up to five per cent of GDP from the official forecast of 4.7 per cent.

“I would be happy to see any growth at all in 1999,” said a senior government economist, who forecast a growth of about three per cent in GDP terms for next year. The 1999 slowdown will partly be the result of declining per capita spending by tourists and shorter holidays, said the economist.

“The international trend now is for more but shorter holidays,” he said.

Tourist arrivals are projected to have increased by nearly seven per cent this year, but the vital sector is registering a low growth rate in real terms, perhaps no more than three or five per cent.

“Next year, the growth in tourism will either be very low or around zero,” said the economist. “It is going to be a difficult year.”

“Tourism will not be able to drive the economy on a fast expansive path next year, but there is healthy growth in other parts of the services sector such banking and finance,” said Tirkides.

It took the Russian financial crisis which began in August several months before affecting tourism from the former communist country, allowing Cyprus to receive nearly 200,000 tourists from there in 1998.

But this looks set to change in 1999 as Russia’s economic woes continue and actually worsen. Notwithstanding the positive picture painted by early 1999 bookings, the slowdown in the British economy does not bode well either for tourism next year.

Already, the growth in 1999 arrivals is expected to be no more than three to four per cent over this year.

Construction, which has been badly hit in recent years, is said to be showing signs of a partial revival, but economists say that the change in the political climate following the resolution of the missiles crisis will improve the sector’s prospects dramatically.

“Now that the missiles question is resolved, there will undoubtedly be a boost in consumption and construction,” said the government economist.