their profits for the six months to the end of December will be lower than on the same period a year earlier, largely because of the weak state of world financial markets. The Royal Gazette asked local investment professionals about the prospects for 1995.

A group of Island investment analysts believe markets in 1995 will show some recovery and, not surprisingly, fall somewhere in between the fruit of 1993 and famine of 1994.

In 1993, investors were smiling as markets boomed but last year's dismal performance showed just how volatile world markets can be.

"I cannot say the worst is over,'' said Mrs. Anne Kast, president of Kast Investment Management Ltd.

"Until we see economic numbers that indicate inflation is dead there will be uncertainly, investors want more proof,'' commented Mrs. Kast.

"Bond and equity markets are likely to improve once the Fed gives us some positive news on interest rates.

The Fed raises the rates in an effort to head off inflation stemming from growth in the US economy.

"Rising interest rates tend to be bad for equity and stock investing,'' she noted.

And the recent collapse of the Mexican economy has emerged as a damper in other emerging markets, said Mrs. Kast.

Overall, she believes 1995 will be better than 1994 -- a year, from an investing point of view, which was atrocious.

In 1994 world markets were down in quarters one, two and four, while a series of US Federal Reserve (Fed) interest rate hikes put a damper on investors investing.

From a global point of view, the interest rate hikes have made many investors "Fed watchers,'' noted Mr. Mark Melvin, financial analyst with Bermuda Investment Advisory Services.

"When the Fed raises the interest rate, the emerging markets tend to suffer'' as US investors tend to keep their money in the US taking advantage of higher interest rates, he added.

"Markets thrive on stability,'' he commented, and things like "Fed watching'' and the perception that "every emerging market has been tainted by the Mexico brush'' has hurt investment in the emerging market.

In Bermuda, according to Mr. Melvin, the Independence issue could have a large impact on the investment climate.

The Green paper on Independence is expected to be tabled in the House early in the next session which begins on February 3, and is anticipated to lay the groundwork for a summer referendum on independence.

He speculated interest rates earned in Bermuda may rise in 1995.

"But no-one has a crystal ball,'' adding much could hinge on the independence issue, as well as the budget due in February.

"Call rates of 4.5 percent have not moved in six or nine months here, yet there have about six interest rate increases in the US,'' he said.

Mr. Andrew Doble, president of Ardent Investment Management Ltd., said he "expected a general drift upward'' in the world's equity markets but, he added, do not look for a banner year like 1993.

Mr. Doble, who focuses exclusively on overseas markets, said he believes the emerging markets will continue to be volatile but investors should not shelve plans to invest just yet.

"In a long term buy and hold strategy (a formula to which he subscribes) there is no bad time to enter the market, if you take into account the law of averages, with a long term buy and hold strategy it can be difficult to get the timing right,'' he said.

Two years ago, many listings on the BSE were undervalued but since then knowledge and size of the Exchange has improved, according to Mr. Doble. Mr.

Doble is bullish on Japan but noted the US market may be poised for a correction downward.

Like his colleagues, Mr. Hugh Williams, financial analyst at Gulf Stream Securities Ltd., said he is optimistic about 1995.

He believes the recovery will come in the latter three quarters.

"If US interest rates settle down I think the markets will surprise people,'' he said.

Corporate earnings are strong in the US, havng been an average of 25 percent higher than in the previous year, according to Mr. Doble.

Not only was he optimistic about the US market, but he had high hopes for he the UK and Australian markets.

Specific areas he expected to do well worldwide were technology and health care.

He also predicted a resurrection of the bond market.

"Three to four year bonds are yielding as much (interest rate) as 30 year bonds, over seven percent,'' he said.

According to Mr. Williams, the BSE needs more liquidity.

"With more liquidity we can look at the BSE and expect things,'' he said.

"The popular theory is Independence but I think it needs more liquidity.'' By being more liquid a security has enough units outstanding to allow for large transactions without a substantial drop in price. Investors are more inclined to seek out more liquid stocks so their trading activities do not alter the market price.

Overall, the group was optimistic about the year to come, despite using adjectives ranging from "stagnant'' to "abysmal'' to describe the investment just year gone by.

Their descriptions echo recent profit warnings to shareholders from the Bank of Bermuda and the Bank of Butterfield -- both banks, with large investment houses, branded the latter half of 1994 as poor.

The Bank of Bermuda has warned shareholders that the last six months of 1994 were likely to be less lucrative than the six months ending December 31, 1993 -- primarily because of volatility in the investment market.

Mr. Michael Collier, CEO of the Bank of Butterfield, concurred.

That bank's profits, for the six months ended December 31, 1994 are anticipated to be down from profits for the same period in 1993.

Mr. Collier cited "difficult trading conditions'' as being responsible for the downturn.

WORST MAY NOT BE OVER -- Mrs. Anne Kast