global markets, a market analyst has noted.

But that is just one way that uncertainties in international markets can seriously affect the Bermuda economy.

Finance Minister Grant Gibbons said the Island also faced the potential for ill effects from market volatility through the country's major trading partner, the US.

He said there was still evidence that the US economy was doing well, although it had been affected by the Asian economic problems.

Analyst at Bermuda Investment Advisory Services Ltd., Mark Melvin, said Bermuda banks could get a feel for adverse markets sooner.

Mr. Melvin said, "Major parts of the business of both the Bank of Bermuda and the Bank of Butterfield are custody and mutual fund administration. If global equities are going down, then their custody and administration fees would also slow down, because they are normally net asset value based. Smaller values mean smaller fees.

"There would also be a question of whether or not new funds would open up here. Will they see this as a good time? I don't know. Maybe those who were putting together new funds or other new products will wait until they think things are settled down.'' Chairman of the Federal Reserve Board Alan Greenspan has recently suggested that the US could be increasingly affected by the crisis in some global markets, slowing economic growth in the coming year.

Dr. Gibbons noted, "If that happens, it will definitely have an impact on Bermuda. Not immediately, perhaps. There is often a lag effect.

"But Americans may exhibit more conservatism in discretionary spending, including travel. That could affect tourism, with people choosing not to spend as much on holidays as they would in more buoyant times. That could mean vacationing closer to home.

"If there is a retrenchment in the stock market, there are a lot of Americans who have money in mutual funds. More people are market driven.

"With the turbulence in the financial markets, a lot of stocks have dropped in price recently -- some on confidence issues and some being affected by the situation in Russia, and perhaps South America.'' Bermuda Stock Exchange CEO William Woods said the mutual fund business was being monitored closely by the Exchange, because incorporations of such funds and their administration were significant businesses to the Island.

"We're watching to see if there is any slow down in new funds,'' he said.

"It's certainly true that the hedge fund world is in a bit of tumult.

"There are not too many new hedge funds appearing. So one direct result may be the slowdown in new mutual funds.

"And although the market for local stocks has shown volumes in the last couple of weeks that have not been very large, that could also be because of the impending election.'' Mr. Melvin pointed out: "Realistically, Bermuda does awfully depend on the outside influences of the rest of the world. There is no way you can avoid it.

"The major insurance (and reinsurance) companies have large portfolios of investments that include equities and bonds. They use those portfolios to build reserves against the future pay out of claims.

"Equities haven't done so well in the last couple of months, although the bond portfolios have done fantastically well. The bond market, wouldn't have gone up as much though, as the equity markets have fallen.

"But those companies usually have a vast preponderance of investments in bonds, rather than equities.'' Dr. Gibbons said exposure to Hurricane Georges for Bermuda reinsurers may have a positive impact on reinsurance rates, and may help foster securitisation issues.

"But,'' he said, "insurers and reinsurers base part of their income on investments, and they can be affected by market volatility.

"Also, there has been a certain amount of news about hedge funds that haven't performed well. All the news about poor performance is going to have an effect on the money mangers' side as well.

"Looking ahead, there is certainly a possibility of a downturn in both the tourism side and the international side, although it is still too early to tell.''