The Cyprus Stock Exchange (CSE) is about to close its worst year in history since the official exchange was established in 1996, with the 78% plunge of the index value in 2008 surpassing the 67% fall in 2000 that followed the 1999 bubble rally when the index skyrocketed 688%, according to Financial Mirror records.
The CSE Main index, comprising the Main, Parallel and Shipping sectors, is expected to end 2008 at around 1067 points, with investors wanting to put this disastrous year behind them.
The year also saw a record in delistings as a result of takeovers or companies going private to save on costs. Aristo Developers, Lanitis Developments, Christis, Petsas, Astra, Caramondanis and Alliance Re were the subject of takeovers and voluntary delistings. Champignon was ejected from the CSE for non-compliance, while Costas Michaelides is expected to delist very soon as it goes private and CLR Capital will delist as its merger with Laiki Investments is concluded. The new combined entity will be called Marfin CLR and will become the largest financial services firm in Cyprus in terms of daily volume transacted on the exchange.
Billions lost
The extent of the hardship endured by investors is further evidenced by a comparison of the total market capitalisation of the CSE, which is set to end 2008 at EUR 5.5 bln, or a massive decline of EUR 15 bln from the start of the year, when the total market cap was EUR 20.53 bln, according to Financial Mirror data.
“In 2008 alone the market has lost EUR 15 bln in value, which nears the total EUR 18 bln lost from the 1999 peak of EUR 21.8 bln to the 2004 low of EUR 3.74 bln,” Financial Mirror analysts who track the index performance said.
No complaints
In stark contrast to the huge public outcry in 2000-2003 as a result of the crash in share prices and the suffering that it caused, in 2008 there was hardly any reaction among Cypriots to the carnage that has wiped out more in value than the 2000 demise.
With only 9000 or so active investors on the CSE, its obvious that the market is more sophisticated and dominated by institutional investors, both local as well as foreign, who in the case of Bank of Cyprus control more than 50% of the capital when the holdings of the Church of Cyprus and the staff provident fund are included.
The public and the government in general, however, are wrong to believe that just because they don’t hold shares, they are not affected. The decline in share prices has resulted in up to EUR 1 bln in additional losses suffered by insurance funds linked to investments and privately run pension funds with exposure to stocks, which affect nearly all fully employed individuals in the country.
Banks suffer
The “Big 3” major banks – Bank of Cyprus (BOC), Marfin Popular Bank (MPB) and Hellenic Bank (HB) – making up 60% of the total market cap of the CSE and accounting for 80% of daily transacted volume, have suffered massively and led the market lower amid concerns that the global credit crunch will have a negative impact on their profits.
Even though the Big 3 insist that they have no exposure to toxic assets such as sub-prime mortgages or investments in now bankrupt financial institutions, the decision by foreign fund managers to reduce exposure to Cypriot bank stocks has led to a massive decline in their value.
Bank of Cyprus, hovering around EUR 2.64 will end 2008 with a significant loss of 79%, even worse than the 72% decline the stock suffered in 2000, Financial Mirror records show. The demise of Cyprus’ most popular and widely held stock has set it back to the 2004 closing level of EUR 2.56 and very close to the 2003 close of EUR 2.15.
Marfin Popular Bank, hovering around EUR 1.82 is on track to end 2008 with a 80% loss, very close to the 79% that the share price lost in 2000 and at the same closing level of EUR 1.85 recorded in 2003.
Hellenic Bank, hovering around EUR 1.03 will end 2008 with a 78% decline, more than its 2000 decline of 71% and the same level as the closing price of 2003, even though in 2004 HB’s stock had tumbled as low as EUR 0.63.
Cheap valuations
The massive plunge in equity values also has its positive side considering that the CSE is at its cheapest level ever, as far as the Financial Mirror data show.
The price to earnings (P/E) ratio of the CSE, weighted to market capitalisation is estimated by the Financial Mirror at 8 times 2007 audited earnings, a fraction of the 39x peak reached in 2005 and 2006.
The p/e is also significantly lower than the 2002 record low of 15x.
The price to book value of Cyprus’s leading stocks is now significantly below 1, a sign of how much they are discounted compared to book or break-up value.
Looking at it from another angle, the total market cap of the CSE at the end of 2008 amounting to EUR 5.5 bln, is a third of the GDP size of Cyprus, which according to Finance Ministry 2008 estimates is EUR 16.87 bln.
At its peak in November 2007 when the CSE index was at 5518 points and when BOC hit a high of EUR 13.78, MPB at EUR 11.18 and HB at EUR 5.70, the CSE market cap was 1-1/2 times the size of Cyprus’s GDP.
The lowest level of the total market cap of the CSE was in 2004 at EUR 3.74 bln.
Suffering everywhere
Though the Cyprus stock market was the worst performer among all markets tracked by the Financial Mirror in 2008, all other major markets suffered significant declines causing pain and suffering to investors around the globe.
The next worst performer according to Financial Mirror data is Greece’s ASE index, down 67% since the start of 2008, followed by China’s Shanghai Composite, down 65% in 2008.
Across Europe, London’s FTSE 100 will end 2008 with losses of 33%, the CAC-40 in Paris with losses of 44% and the German Dax with losses of 42%. Among core Europe, only the MibTel in Italy has the worst performance of 49%.
Japan's Nikkei stock average fell 42% in 2008, the biggest loss in its 58-year history. The annual losses were the biggest ever, surpassing the 38.7% tumble marked in 1990.
Across the Atlantic, 2008 could be the worst year ever for Wall Street.
The U.S. market's most tracked benchmark, the S&P 500, is down 40.6% since last year's close surpassing 1931's drop of 47.1% — the biggest yearly decline ever.
A record $7.3 trln of stock market value has been lost in 2008 when investors ran for the exits as a collapse originally thought to be contained to the U.S. home mortgage sector morphed into a full-blown global credit crisis that now threatens global recession.
The fallout from frozen credit markets permeated all sectors from banks to autos to resources. While unemployment climbed, house prices plummeted and cash-strapped consumers curtailed their spending.
The Dow Jones index is on track to end the year down 35.8% and the Nasdaq down 42.3%.
Among the casualties of 2008: the restructuring, acquisition or disappearance of such heavy hitters as Bear Stearns, AIG, Washington Mutual, Merrill Lynch and Lehman Brothers.
The global downturn forced central banks around the world to mount coordinated interest-rate cuts in an attempt to stimulate growth, pushing rates aggressively lower.
Earlier this month, the U.S. Federal Reserve again cut rates to almost zero and pledged to undertake more unconventional methods to fight off the year-long recession.
While no one is feeling celebratory as the year draws to a close, analysts say the Fed's offensive has bolstered optimism by showing the central bank is willing to take whatever steps are necessary to get credit flowing again.
The Obama factor
The new year will also bring a new White House administration when Barack Obama is sworn in as president in January. Hopes for a new stimulus package have also buoyed the market of late as Obama's picks for his economic team have been greeted favourably.
Obama is expected to unveil a government spending programme in areas including infrastructure building, which aims to generate 3 mln new jobs and could cost $775 bln or more.
If it goes according to plan, 2009 will be a transition year from one of major disasters and financial distress to one of repair and gradual recovery.
Looking into the new year, the economic data is likely to continue to be very weak. However, the question really is: “How much of that bad news is already priced in, and how long will it last?”
