ECONOMISTS yesterday voiced concern at measures passed by parliament in an attempt to refloat the sinking stock market.
With the market hammered by investor panic over recent weeks, the House of Representatives on Thursday announced a package of measures that many yesterday dismissed as a short-term bid to fiddle the market
“I’m not sure it will work in the long-term, because the market will go where it wants to go,” economist Marios Clerides told the Cyprus Mail.
Investment companies have been given an eight-month ultimatum to sink 80 per cent of investor-capital into the bourse. Listed companies are to be allowed to buy 10 per cent of their own shares and those coming on to the market must make 30 per cent of their shares available in public offering.
In addition, the state has offered tax relief incentives for stock investments and the cabinet will launch an investigation into allegations of “dirty-dealings” on the exchange.
Clerides drew a line between the measures to boost market confidence and efforts to manipulate the exchange.
Confidence boosting moves could haul investors out of the doldrums, something crucial for recovery.
“But I find the measures supposed to push the index up ridiculous in a free market,” he said.
“For investment companies to invest big parts of their assets over next eight months, its almost saying that shareholders have to bear the brunt for the correction of the market,” he explained.
The package interferes with the relationship between investment companies and their clients, undermining the companies’ decision to invest what, when and where they see fit – which is precisely their field of expertise.
“If they invest now and share prices continue to fall, then company directors and managers will say it was a government decision. Where is the responsibility then? Investment companies have another £150 million, what will happen when that runs out?” said Clerides.
Most analysts agree that one of the major reasons for the recent freefall has been the wave of new companies listing on the exchange.
When share prices soared sky high last year, companies on the outside were desperate to cash in.
“We have 150 companies now. When the market was overvalued, a lot of companies decided to take advantage of the fact that they could raise capital very quickly. But there isn’t enough money to sustain all these companies,” said Clerides.
The general feeling on the floor is that the market will still loose, but that the worst is over: what will come is a flattening out, rather than a wipe-out, if only because there’s not much left for the index to fall.
“Perhaps we are seeing a sort of barrier now, in the reaction of the new companies that want to get in. I think a lot are thinking how the hell can I get out?” said one expert.
Woolworth recently aborted its prospective rights issue and Universal the opening of an investment fund.
Analysts were last night quoting figures lower than 200, others of 220 to 250 as the possible low point for the share index.
“The government should have intervened before people lost 60 to 65 per cent of their bank power. In Cyprus, if there’s a fire it erases everything before the fire brigade comes. And how slowly they move! Many of the measures are useless, the market will correct the failings itself,” said broker Socrates Georgiades of Argus Financial Group.
