year for the BSX, writes journalist Ahmed ElAmin in this critical assessment of who made the running in 1997 It has been a watershed year for the Bermuda Stock Exchange.

Stock prices of the main local companies rose as foreign investors entered the market, driving the index to record highs. The BSX attracted an increasing number of mutual funds, and is introducing some new initiatives which should help spark investor interest.

As shown by the graph the larger companies were among some of the stellar performers of the year. These included The Bank of N.T. Butterfield and Son Ltd., the Bank of Bermuda, Argus Insurance, and Belco Holdings Ltd. Together these companies make up 86 percent of the weighings in the BSX index, with the other 16 companies making up the rest.

The index's daily values are calculated based on the share price movements of the 20 indexed companies according to their market capitalisation. The Bank of Bermuda, at 44.8 percent, has the highest weighting on the index, while Kentucky Fried Chicken (Bermuda) Ltd., with 0.083 percent, has the lowest.

From a record low of 896.13 points in March the index rebounded to a record high of 1407.44 on December 11.

The best performing company of the year was construction supplier S.A.L. Ltd.

which had a 175 percent return based on the gain on share price. The company's stock rose from $4 to $11. But that gain is based on 11 trades during the year of a small amount of shares. Still, at $11 the company is trading at less then half its share price to book value.

The coming year should be key for closely held companies like S.A.L. Ltd.

Local companies on the BSX will be required to have at least 25 percent of the shares not in the hands of the directors and officers, and have a minimum of 50 shareholders by May 1998. The stockholders will have to decide whether they want to stay listed in the exchange, or take the company private.

If current shareholders decide to sell some of the shares the problem of liquidity -- the ability to sell and buy stock -- will be alleviated to some extent.

The real performers were the Bank of Butterfield and the Bank of Bermuda.

Butterfield's share price rose 78 percent to $16 from the closing price 1996.

This share gain was made despite the company's cutting of some overseas operations and taking a $20.6 million charge bringing net profit for the fiscal year ended June 30, a drop of 64 percent from the previous fiscal year.

Butterfield rebounded with record first quarter profit of $10.7 million for the current fiscal year. The bank also announced a dividend increase of 28 percent to 16 cents a quarter.

Bank of Bermuda share price rose 66 percent during the year to $28.63. The bank declared record profits for the fifth successive year. It posted net profits of $48.7 million for the year ended June 30, a three percent gain over the previous financial year. The bank is on track for further gains, recording record first quarter earnings of $14.2 million.

Investment advisor Mark Melvin of Bermuda Investment Advisory Services noted the gains came mainly in the moths of May, June and July, as foreign investors piled into the market looking for value.

"Share prices have been languishing for a good period of time,'' he said.

"The economy is more stable and more prosperous. There is more confidence in Bermuda stocks.'' However he said in the latter part of this year trading volumes have dropped off substantially. Quite a lot of the trading has been due to company buybacks.

He predicts trading volumes will continue to decline in 1998 as the main players on the stock exchange come closer to their value and the amount of shares available for sale falls off. Those who wanted to get rid of their shares did so during the gains of 1996. The holdouts might need a further price nudge.

"Shares are getting better valued for people who own them,'' he said.

"Dividends are pretty good. The float of available shares is low.

Jeff Conyers, chief executive officer of First Bermuda Securities, called 1996 a watershed year for the BSX.

"It's the first year we've had some serious overseas buying in Bermuda stocks,'' he said. "The top five or six companies benefited. Despite the low liquidity I expect trading will continue as prices remain cheap. If you're in for the long term you can discount liquidity to some extent.'' He expects the Bank of Butterfield and the Bank of Bermuda will continue to make gains next year.

"Most stocks should benefit from the good economy,'' he said.

Bermuda Aviation Services is one of Mr. Conyers favourite companies. The dividend yield is at about seven percent, according to the BSX report, among the highest on the exchange. BAS ranked 11 among stocks in performance, gaining 13 percent to $4.50, about 80 percent of its book value.

He believes BAS has good management, and despite the decline in tourism it should do well because it has diversified into other areas apart from providing airport services.

Mr. Conyers also likes TeleBermuda International due to its international reach in the telecommunications industry. It should be noted First Bermuda Securities sponsored the initial public offering on the local market, and Mr.

Conyers is a director of the company.

Argus and Belco Holdings are also among the good stocks to buy he believes.

Argus share price has risen 59 percent during the year to $17. Belco has gained 27 percent to $24.50.

"Argus has moved a lot but there is still value in that company of which most people are unaware,'' he said. The value lies in their large portfolio of local stocks, including a good chunk of the Bank of Butterfield, and in the company's cash flow.

Bermuda Telephone Co. is a riskier pick due to the entrance of competitors in providing local telecommunications services, Mr. Conyers said.

"Telco may go through some gyrations,'' he said. "But incumbents tend to do better in the end. The company's performance will depend on whether it gets into a more competitive mode over the next five years. Over the next year there is some risk.'' He said the strong economy and a possible strengthening of the ailing tourism industry could have a snowball effect on local companies.

BSX's record year The worse performing stock of the year was Kentucky Fried Chicken (Bermuda) Ltd., which fell 70 percent to $4.25. KFC was pulled back from the brink of bankruptcy in February though a bailout by Lines Overseas Management Ltd. The investment company made a sponsored rights offering to existing shareholders.

The BSX also made gains in developing its international presence during the year. The BSX attracted about 45 new mutual funds to its listings, bringing the total to 106.

In the coming months chief executive officer William Woods said the BSX would introduce SCRIPS, an index based fund of local companies which will allow investors to buy into the whole market. CATEX Bermuda, an offshore market for insurance products, and an index based on Bermuda's insurance and reinsurance companies will also be introduced early next year.

Jeffrey Conyers