RIDING on a wave of euphoric relief after European governments pledged to help banks through the credit crunch, the Cyprus stock exchange yesterday registered gains for a second consecutive day, but market observers warn the party may be over soon.
Again, largely buoyed by banks, the CSE general index went up 6.48 per cent, with the volume in trading reaching €12,880,254.
The Bank of Cyprus share closed at €5.6, 8.43 per cent up on the previous day, with Marfin Popular Bank gaining 4.97 per cent and the Hellenic Bank also posting a 3.39 per cent increase.
However, experts say investors should not get too carried away with the double whammy, and predict the boost will inevitably fizzle out in the next few days.
“We’re definitely not out of the woods yet,” said one analyst, who wished not to be named.
She said the CSE’s impressive rebound over the past couple of days was “only natural” following the heavy losses sustained during the last week, especially on Friday when the bourse took a nosedive.
Asked whether the euphoria would continue, the source predicted it would probably level out in the course of the week.
“Maybe as early as tomorrow [today]. It all depends on how Dow Jones closes tonight,” she added.
The impact on the Cyprus economy – reliant on tourism, construction and offshore companies – would be felt sooner or later, the source said. Its extent could not be guessed at this point.
In early trading yesterday, the main US index was 0.09 per cent up, hovering just under the critical 9,400 points mark. In Paris, London and Frankfurt the bourses were holding up with marginal gains.
The Dow was digesting the announcement yesterday by the US Treasury Secretary of a plan to use $250 billion of taxpayer funds to purchase stakes in thousands of financial firms to halt a credit freeze that threatened to bankrupt companies and hammer the job market.
Meanwhile euro zone leaders have agreed commitments to provide capital for banks caught short of funds because of frozen money markets and to insure or buy into new debt issues. The move has injected confidence, but its duration is touch and go.
“My feeling is that this has been a mini-rally,” said economist/stockbroker Stavros Agrotis of the local scene.
In actual fact, he added, despite the rebound of the last two days, the overall trend on the markets, including Cyprus, was a negative one.
“The financial crisis abroad has not hit the real economy yet. That’s expected to take some time, most likely next year.”
As companies realised their profits would be lower in 2009, they might start downsizing, said Agrotis.
He forecast that the Cyprus Stock Exchange, following the rest of the world, might slump in the weeks and months to come as the effects of the crunch started being felt. Depending on international trends, the CSE might not recover until as late as mid-2009.
But the gloomy message comes with a disclaimer, because there is still a way out of the crisis.
“Globally, there’s an awful lot of cash tied up in equity funds for example…if this secure money is put in the market, we could witness a recovery much earlier than anticipated,” said Agrotis.
