The financial markets are set to stabilise and eventually recover from the current crisis.

That is the prediction of Robert Pires, CEO of Bermuda Investment Advisory Services (BIAS), who sees a number of positive signs that the capital markets will get better, including bond market prices improving and credit spreads narrowing, as revealed at his company's Quarterly Market Briefing for the first quarter of 2009 for investors.

Mr. Pires told his clients that there were also a variety of good investment opportunities on offer, ranging from energy, education and technology to generic drugs, AAA-rated supranational bonds and gold.

He said the key to stabilising the banking system was to restore banks' capital positions, resume interbank lending, drop central bank lending rates and rescue troubled banks, while the capital markets required credit markets to be unfrozen, the encouragement of lending to prime companies, a reduction in credit spreads and consumer credit to be resumed.

On a wider scale, the global economy needed house prices to stabilise, increased consumer spending, the creation of jobs, improved consumer confidence and manufacturing output to be restored to prior levels, said Mr. Pires.

For a recovery to happen, he added, production capacity must be focused to build for the future, covering everything from infrastructure spending and alternative energy investment to efficiencies, such as in technology, and education.

As a commitment to the financial stabilisation of their respective countries and areas, the US has put aside $9.7 trillion for its economy, the European Union $3.9 trillion, the UK $1 trillion and Japan $479 billion, amounting to a total of $15.1 trillion, Mr. Pires pointed out.

He cited the US Government's bank ($2 trillion in additional commitments) and fiscal (approved spending plan of $787 billion) plans as examples of recent important developments on that front.

Mr. Pires said that one of the best performers in the capital market was gold, which rose 5.77 percent over 2008, while the narrowing of the TED spread between the rate at which the banking sector borrows relative to the US Government indicating that the credit markets were going to improve.

Bond market pricing had risen significantly since the collapse of Lehman Brothers in September last year and credit spreads narrowing across the industrial, financial and telecommunications industries was another encouraging sign for the future.

But unemployment was on the increase, with 623,000 new claims for unemployment in the US through February 2009, he said, with the US housing market in free fall, projected 10 percent down from March and September 2009.

"From the perspective of economic recovery, we are seeing the bond market improving in terms of pricing and credit spreads narrowing, while money supply is also increasing," said Mr. Pires.

"The recovery themes include massive new government spending on infrastructure, alternative energy and education, governments printing money to 'reflate' economies, efficiencies in technology and generics, rising savings rates with people saving for a rainy day, restructuring everywhere shown in rising unemployment and business closures and gradually improving credit conditions where huge policy actions are beginning to work."

However, Mr. Pires cautioned, there were several obstacles in the way of a recovery, like increased stifling Government regulation, protectionism, hedge fund liquidations and Madoff-type issues, housing prices dropping further and the finances of smaller countries going into decline, most notably with Iceland's bankruptcy and the collapse of banks in the Isle of Man.

"We do see investment opportunities in infrastructure beneficiaries such as water and energy services, pipelines and commodities, energy, including traditional and alternative, education, efficiencies, technology, generic drugs, AAA-rated supranational bonds, gold and options strategies," he said.

Meanwhile, BIAS's Short Duration Income Fund, Global Balanced Fund and Global Equities Fund had all outperformed their competitors, he said, with the former benefiting from a focus on captive insurance markets and no exposure to sub-prime or hedge funds.