produced, where share trading volumes exceeded 50,000. Actual volumes were 153,415, 14,606, 113,793, 35,945, and most recently 33,902.

Busy trading breeds liquidity, the lifeblood of the stock market. In the absence of liquidity, buyers and sellers are not readily able to invest or divest. When lack of liquidity reaches chronic levels, investors will stay away and the name tag of "listed companies'' becomes little more than just a name.

The cyclical nature of the Bermuda economy and how it reduces liquidity, which flows through into reduced savings (including stock exchange activity), has been noted before.

This has happened in the first quarter of 1994, and what is possibly more disturbing, is continuing into the second quarter where overall volumes are below those of the first quarter. Cyclicality alone does not appear to be the explanation. In addition to the slower than anticipated pickup in economic activity in Bermuda, longer-term factors such as the on-off Independence issue and the proposed Budget review and possible abolition of Exchange Control later on in the year are likely to have contributed to this. In circumstances such as these, it is pertinent to ask where there is liquidity in the domestic stock exchange.

Stocks that have not traded in the last month include: BBC, BCS, Masters, SAL Solar Enterprises, Stevedoring Services, Bermuda Sun, and BDR Co. There is no liquidity here.

Stocks that have traded in two or fewer weeks in the last month include: BFCL, BAS, Bermuda Bakery, CHIPS, Devonshire Industries, KFC, Long Botham, BPH, Island Press, Watlington Water, Bda Gov't 6.5% Notes, and BELCO 97 and 98 Notes. There is little liquidity in these stocks.

Stocks that have traded three or more times in the last month include: BoB (five times), BNTB (five times), BCB (five times), Argus (three times), BELCO (four times), and BOB 9% $US Notes (five times). Liquidity is moderate (three) to adequate (five) in these stocks. These stocks comprise 91.51 percent of the index.

Having identified the more liquid of portion of the exchange, the next pertinent question is to ask where is there value? A basic indicator of value is the Price to Book Value (P/BV) for a stock. If this ratio exceeds 1, the stock is being valued at a premium to its declared Book Value. Within the Bermuda exchange, this ratio takes on other importance and needs to be better understood for a number of reasons.

First, there is no pressure exerted by the Stock Exchange for companies to file annual financial statements promptly. Consequently, they are not, and particularly so in the case of the less liquid stocks identified above.

Several of these companies have fiscal year-ends toward the end of the calendar year, and as a result of the delays in filing annual reports, contain financial information as much as 18 months out of date. The denominator in the P/BV calculation is therefore anything but current.

Second, policy exists preventing outside competition (e.g. within the banking sector), thus comparisons of overseas companies with Bermuda counterparts should be viewed by means other than just a straight P/BV comparison. Having established these stipulations: P/BV less than 1: At present, stocks valued at a discount to their disclosed BV include BBC, BAS, Masters, SAL, BF&M, BPH, Island Press, BELCO, and TELCO.

All but the last-named two utilities and BF&M are either non-liquid or low liquidity stocks, which partly explains the reason for their low ratings.

BF&M, of course still has the spectre of the Bermuda Fire and Marine liquidation figuring prominently in its present low rating.

P/BV above 1: The stocks valued at a premium to their disclosed BV are BoB, BNTB, BCB, Bermuda Bakery, BCS, Devonshire Industries, KFC, Long Botham, Stevedoring Services, Argus, and Bermuda Sun.

This list includes stocks where there exists the possibility of market value exceeding disclosed (accounting convention) book values, the larger banks, BoB, and BNTB, where there exists the possibility of undisclosed "inner reserves'', Bermuda Bakery's age old valuation of its real estate, and Argus' substantial and footnoted market value excesses over book for its investment portfolio.

Also included are those stocks where divided payout and cash generation drive market price. BCS, KFC, and Devonshire Industries all paid out over 85 percent of their reported net income.

Summing up, where there is liquidity, shares are looking expensive relative to the market (utilities excepted). Where there is little or no liquidity, there are shares that have value, but investors in these issues may have to wait for that value to be unlocked. The dividend-driven philosophy of many investors is valid. However, these investors should also be prepared to be patient. The possibility that the local exchange may soon open its membership beyond the three banks may have an impact on the liquidity aspect. However, in the circumstances, investors, analysts, and observers all need the virtue of patience.

MARK MELVIN for BIAS Bermuda