The Bermuda Stock Exchange, a barometer of the Island's fortunes, has slumped recently -- due mainly to "political rumblings'' and seasonal adjustments, according to local analysts.

Some market watchers take the upbeat view that the share price slump provides an opportune time for share purchasing.

Mr. Brian Way, a foreign exchange trader at the Bank of Butterfield, insisted the Bermuda Stock Exchange (BSE) had a "rosy outlook''.

"This a great opportunity for scale-down buying,'' he said.

Mr. David Bolden, of Emerald Financial, predicted that post-Budget buying would be a good time to get back into the market.

But Lines Overseas Management (LOM) pointed out that since the end of last year the BSE had dropped by 9.2 percent, with banks and utilities leading the way.

LOM managing director Mr. Scott Lines recommended that investors avoid buying local stocks until the exact nature of Government's planned currency deregulation was made clear.

Mr. Way said the exaggerated decline in the market reflected the structure of the local Exchange, which could create volatility.

"Some exchanges have specialists to buy and sell into weakness and strength respectively. The fact that our market doesn't allow short selling creates an absence of natural buyers as sentiment turns from bullish to bearish,'' he said.

Therefore, the moves are exaggerated on the way up and the way down, he added.

"During periods of uncertainty as there is now, the markets lack liquidity to absorb even minimal selling volume. People are uncertain about the future of exchange controls, as well as the other political rumblings.

"Locals hear that they may be able to take money out of the country so they fear money may flow from the local market.

"When the sentiment changes everyone wants to sell, and no-one wants to buy.'' Most market watchers, including Mr. Robert Pires, founder of Bermuda Investment Advisory Services, and Ms Anne Kast, president of Kast Investment Management, attributed key factors in the market's decline to the expectation that foreign exchange controls were to be relaxed, and also to the atmosphere of uncertainty created by the Independence debate.

"Investors are loathe to commit to funds when there is an element of uncertainty,'' said Mr. Pires, who advised his clients to sell stocks before Christmas.

He saw the current trend continuing until the beginning of April -- much being contingent on the Budget speech next month, and the dialogue on Independence.

Mr. Lines said: "With the prospect of no exchange controls, investors are looking to diversify their respective investment allocations.

"Despite the debate on whether returns achievable are higher abroad or domestically, simply from the aspect of geographic, economic and political diversification, local investors will move money abroad to reduce their risk profiles,'' said Mr. Lines.

But he detected a second "subtler and potentially more onerous'' influence on the market.

"As exchange controls are lifted, interest rate levels in Bermuda will, as we are within the US bloc, change to reflect US rates,'' he explained.

"Many individuals point to US T-bill rates of three percent, and expect that local company interest burdens will lessen as borrowing rates go down.

"We view this as a dangerous misconception.

"Prime lending rates in the US are six percent. Banks, whether local or international, will add a certain percentage to this rate to reflect country political risk, such as Independence and changes in Government. In addition, the banks will add another percentage that reflects their perception of the credit worthiness of the client.

"In brief, this means that for many local businesses, their interest costs may rise, not decline.

"Also, currently low interest rates in the US are likely to rise in the next six months, not decline.'' LOM expects the pressure on BSE to continue in the short term, and is also cautious about long term prospects given the risks to Bermuda corporate profits, and to the higher interest rates at which future profits must be discounted.

Other readings of the current decline include Mr. Pires' view that the market is affected by a seasonal shortage of cash after Christmas.

"There is a cyclical aspect to the economy,'' he said. "In the winter, there are less tourists, less money circulating in the economy, and therefore less money to spend on local shares.'' Another factor related to last October's election, he said. "Many investors were concerned that the election was so close. The spectre of a PLP Government, which traditionally did not adopt a constructive approach to the business sector, had made people concerned about being entirely exposed to local shares,'' said Mr. Pires.

Ms Kast, reviewing the long term picture, said the stock market had enjoyed a good run over the last two years, and, unsurprisingly, had made a recent correction.

She detected an element of panic, but said any flight from the market would only be temporary.

Ms Carolyn Hall, of Gulf Stream Securities was "surprised'' to see the Exchange go down so much in the last month.

She said less experienced investors were selling, and more experienced investors holding on.

"The market has over-corrected itself, and over-reacted to news of the relaxation of currency controls.

"The volumes traded are so small, that it is indicative of the fact that people are still on the fence waiting to see what happens.

"Bermudians are still swayed by dividend yields. The local dividends have been driven up higher than bank interest rates. We are not going to see those yields overseas, even though the Bermudian investor will have avoided the 10 percent tax after the budget.'' She watched Telco's stock moving from $35 to $30 on January 25, resulting the next day in a "tremendous'' number of buy orders as a consequence of the "bargain'' price.

The next day stock moved up to $33, showing that the seller was alone in that point of view, she said.