Last year the Bermuda Stock Exchange (BSX) index hit rock bottom. This year, after tottering along around the 900 mark, the index rose in April. Then with a dramatic surge in June, the index reached a record high of 1278.91 on July 16.

In the year to date the index has gained about 39 percent in value, a rise of 356 points. Trading mainly by institutional and foreign investors in the bigger capitalised companies is driving the market.

Bank of N.T. Butterfield and Son Ltd. stock, which makes up 25 percent of the index's weight, gained about 56 percent in value since the start of the year.

Bank of Bermuda stock, representing 45 percent of the index, gained 51 percent in value. While the stock had been rising slowly from $17.50 at the start of May, it made significant gains in the month of June, rising to $26 from $19.

The stock gain came at a time when the bank adopted poison pill remedies to thwart any takeover bid. On June 26 the bank announced it was considering measures to improve the "marketability'' of its shares, including making a secondary listing on an overseas stock market, most likely in the US.

Both banks had also appointed new chief executive officers this year to lead them forward.

Argus Insurance, with a weighting of seven percent on the index, rose 36 percent in value, most of the gains coming last week when the price went to $16 from a previous trade value of $13.50. Argus managing director John Sainsbury described the jump as "disorderly'' since there were no intermediate bidding steps up from a bid price of $13.50 and an asking price of $16 on July 16 when the trade was made.

Belco Holdings, with a nine percent weighting, gained 20 percent in value since the start of the year.

Local subsidiaries of Oppenheimer & Co., Inc., the US-based investment bank, have been one of the bigger players trading on the local market. Earlier this year Oppenheimer took a 17 percent stake in TeleBermuda International Ltd., and a significant stake in Kentucky Fried Chicken (Bermuda) Ltd.

Brian Way, an investment analyst with Oppenheimer, said the company thinks local bank stocks are good value in a place with a strong economy.

"They are the heart of the Bermudian economy,'' he said. "If the Bermuda economy does well we feel that the banking sector should do well also...We are not the only people buying these stocks. There are some other big players out there. For the last three years, people have been squawking about how cheap these stocks are and the moment somebody steps up and puts their money where their mouth is, then sentiment seems to go on a wild bungie cord jump.'' In other markets a good bank trades at between two and two-and-a-half book value, Mr. Way said. On that basis stock prices for the Bank of Bermuda, trading at about $26, and Bank of Butterfield, at about $14, have some way to go.

"The Bank of Bermuda's last book value was $18 and at year end it will probably jump towards $20,'' he said. "It's a $40 to $50 stock. So we see intrinsic value in these stocks.'' On that analysis Bank of Butterfield should be trading at between $28 and $35.

Bank of Butterfield senior portfolio manager Sean Kelly said the recent rise in the local stock market marks an important turning point. Mr. Kelly manages the Buttress Bermuda Fund, which invests in the local stock market.

"The reason why it's an important turning point is that there are institutional and some private investors who are looking at the market at these levels, even though it has run up a bit,'' he said. "Where investors have to be careful though is that the number of players buying the market at this time is not significant. They might be putting big dollar amounts in the market but you don't have a lot of players. If the players decide they have had enough at this time then where is the buying pressure going to come from if it's not a very broad based rally?'' He therefore advises investors who want to invest locally to put their long term money into the market. Don't try and jump on the bandwagon with money you might need in six months when the market might be down again if some of the big players decide they want to cash in their gains.

"I think the expectation in investors' minds is that up is the way forward for the next little while,'' he said. "There is still good value in the market. As a result I personally don't see the market softening much from these levels, although it could soften a little bit. The key is if you are an investor in these markets and are willing to put your money in you should be making a long term investment.

Stock market riding high It should not be a short term investment because you just don't know where the next investor is going to come from with $1 million to put into the market and push it up a couple more points. Similarily, you don't know if someone might have to divest themselves of a large amount of shares which might push the market down for a short while.

The relatively large blocks of trades being made is one of the signs that institutions are playing the market and pushing it up at this time.

"People see the momentum and try and play the momentum,'' Mr. Kelly said.

"At some point that will end and you just don't want to be the last one out and be burned at the end.'' Bank of Bermuda investment analyst Huw Williams said the BSX's major stocks are an "extremely good value'' compared to those on other exchanges.

"Prices are very cheap and the dividend yield is still very generous compared to the US,'' he said. "We feel that some of the other blue chip stocks that have not moved to any great degree still represent very good value. There is still plenty of upside potential.'' Among those stocks are Belco Holdings, the Bermuda Telephone Co. Ltd (BTC), Argus Insurance, and Bermuda Home. All except Argus are currently trading at a discount to book value.

"With Belco where else in the world can you buy a well managed utility with consistent ten percent yearly earnings growth, selling at only seven times earnings and less than 70 percent book value?'' he said.

BTC stock, with a market capitalisation on the index of five percent, gained only three percent in the year to date.