500 millionaires later, Cyproit stocks plunge

What goes up, must come down. In global stock markets, this simple Newtonian principle, has a distinct echo. And for the past few months, it has been jolting rookie investors in Cyprus to the harsh returns of a market meltdown.

Until the beginning of last year, the Cyprus Stock Exchange was sort of a low-key country club. Only 7 percent of Cypriot households owned shares.

But when the Cyprus stock index rocketed nearly 700 percent - making about 500 Cyproits millionaires in a matter of weeks - the nation of 700,000 people took notice. Soon, about a third of the population had invested in stocks. Since January, the market has been on a prolonged slide, losing more than 40 percent of its value. Last week, the index hit a low for the year.

Many ordinary people, with little experience in economic forces, took out loans to play the market. Some speculated with savings set aside for their children's education or even their retirement.

"We were led like lambs to the slaughter," grumbled one protester. Like him, other investors have been accusing brokers of being "thieves" and "crooks."

In a sign of their desperation, there were violent protests earlier this summer: Disgruntled investors attempted to storm the marble-and-glass offices of the stock exchange. The building, as well as most of the country's 30 brokerages, are now guarded by private security.

"Psychology is the major obstacle, and because we're a Mediterranean island and the index is a baby one, there is still a lot of inexperience," says Demos Stavrides of AAA Stockbrokers.

Many analysts say the market has bottomed out after what they say was a necessary, if painful, correction.

Yet the market's roller-coaster ride over the past 18 months could have profound social effects, experts say. "The stock market has created the biggest peacetime distribution of wealth since the 1974 Turkish invasion," says economist Marios Clerides.

"Unfortunately, the lower middle classes entered the market at a late stage, in the second half of 1999, and they have experienced losses," says Andreas Charalambous, chairman of the Cyprus Securities and Exchange Commission.

Many blame brokers for their misfortunes. "My stock broker gave me bad advice. I sold a plot of land I had inherited to buy shares, and they are now worth half of what I paid for them," complains Maria Menelaou. It's a predicament far removed from last year when many ordinary people made huge windfalls.

Meanwhile, investigations by the Securities and Exchange Commission concluded that the complaints against brokers were unfounded.

But the bombings of brokerage firms have caused revulsion on the relatively crime-free holiday island, where muggings are virtually unknown and few people bother locking their cars when they go shopping.

Brokers, meanwhile, say inexperienced investors regarded the exchange as an enchanted casino where every bet was a sure-fire winner. Repeated government warnings were ignored as people rushed to buy shares that were often vastly over-priced. There were even reports of people cheering on their shares as if they were at the races.

(c) Copyright 2000. The Christian Science Publishing Society