ON 'CHANGE.

Auckland Star, Volume LXII, Issue 305, 26 December 1931, Page 4

ON 'CHANGE.

THE YEAR REVIEWED.

PERIOD OF ANXIETY

VALUES CONSTANTLY CHANGING

Like its immediate predecessor the year just closed has been one of the most momentous in the annals of the Auckland Stock Exchange. True, there have not been such startling declines as marked .the year 1930, when a competent authority estimated the loss in values of a group of 57 securities on the Melbourne Exchange at the stupendous figure of £42,000,000. As the new year commenced, investors, dazed with the dire happenings of the previous twelve months, were almost universally obsessed with the query: — "Has bottom been reached, or will prices tumble still further?" Time has answered this question. Values on the whole did slip further, but they recovered, and in some cases are higher than on December 23, 1930. This is not to say. that the year hae been satisfactory, far from it. Regained confidence on the part of investors, not increased profit-making by the concerns represented, has brought prices up again. As in the worst period of the slump investors allowed many sound stocks to be written down to a ridiculously low level, vide Commercial Banks at 12/9, similarly in the return swing of the pendulum they have forced some stocks higher than general prospects warrant. Goldsbrough, Morts. The market in Goldsbrough, Mort shares may be taken as an example. These shares, though returning only about 4 , /fe per cent, are selling at 24/, presumably because the market expects the company to have a very good year. It is to be hoped it will, but its profits last year were under £115,000, and £5000 short of the 5 per cent dividend. Its revenue for the current year will be affected by the interest reduction which, if taken at, say, I per cent on advances and investments of £5,900,000 as at March, 1931, would be £59,000 a year. As the above total included wool, the reduction would be somewhat less. The bulk of its debenture debt being at 4 per cent, and only about £580,000 at 5 per cent, the saving in outgoing interest will not be very large. To maintain profits on last year's basis, the company must earn additional profits from its main business sufficient to set off the loss in interest revenue, which may, of course, be much less than £59,000 a year. Many other similar instances might be quoted. As a long-term investment manv of the current valuations will probably be justified, but the immediate results may be disappointing to purchasers.

The trend of the market during the past year for the scrip of leading banks, and also.for some of the more popular general securities, as compared with two previous years, is shown in the following table:— _ .

Both the two big Australian companies, have, in addition to their original metal enterprises, extensive fertiliser businesses and the difficulties of the farming community 'have lessened the revenue from •that source, while the unprecedented slump in metal values has hit them very hard. However, the metal markets have shown a marked improvement of late. Britain's suspension of the gold standard has helped, while international agreement •has brought about a curtailment in tin production, and similar action is now proposed in regard to copper. Both Waihi and Grand Junction have benefited very materially by the recent sharp advance in the price of gold. Due to the same cause there is a strong revival in the goldmining industry in the Dominion and the country's wealth seems likely to receive a substantial and welcome increase from thi? industry during the coming year. The striking advance in Grand Junctions is due to the dividend rate having beon increased at last annual meeting from Id to 4d per share. « DOMINION INSTITUTIONS.

GOVERNMENT STOCKS. Tax frees, 45.. 98 O 0 97 17 6 90 10 0 Bonds, 5i ... 99 10 0 99 10 0 100 O 0

From the above table it will be seen that a limited number of popular industrials are still attractive to investors, but, on the other hand, there are a host of other concerns which have been so badly hit by the slump that they are temporarily removed from the list of dividend payers. After 28 years of S per cent distribution the. directors of Milne , and Choyce had to reduce their dividend rate, whilst another historic Auckland enterprise, the Northern Steamship Co., had to forego the usual dividend for the first time in the memory, of most shareholders. I

Amongst major happenings of the year probably the one with the most direct effect on the securities market in Australia and New Zealand was the action of the Federal Parliament in making what v.as virtually a compulsory scaling down of interest rates by 22% per cent. The assets of all the banks, the big insurance companies and other financial institutious wejve seriously depleted as a consequence, ;jjjci reserves built up in past years had to be drawn upon to make up the deficit. However, once the change was made the position in regard to Government stocks ;<>iproached comparative stability at lower ! veJs. It is not at all clear, however, that (!•.'■ intended object of lowering general i iter est rates has been achieved. While ! ■Mesa of debentures, in common with i '.l-lgagecs, have been compelled to accept ! xat- rates of interest than they bar-

; lined for, borrowers requiring new i<K>n.ey find that, as in the past, they have t j pay a rate of interest based on the risk i.ts'uh'cd to the lender.

An inevitable result of this legislative ./-non was that valuta of Commonwealth .-'curities .dropped heavily from the time <!><■ Government interference was threatened.

Our Gilt Edges Shaken. Prior to this New Zealand Government stocks had proved impregnable m the whirlpool of dissolving securities, but as the public finances of the Dominion approached an acute stage the fear got about that the New Zealand Government would take measures similar to those adopted ill the Commonwealth. Australian investors who had bought heavily in New Zealand stocks when the bonds in their own country appeared to be in jeopardy, promptly commenced to unload again and, aided by exchange differences, were. able to accept values much below existing market assessments. Under strong and persistent selling pressure New Zealand Government stocks dropped 6 to 7 per cent in a fortnight. When the Government Budget came out the stocks recovered, and at time of writing 5Ws arc again back to par. Tax frees, on the other hand, are still £3 10/ to £4 short of par as a direct result of legislation by which the possession of these securities is taken into consideration when taxpayers' assessment basis is computed. Political Influences. Another disturbing clement in Stock Exchange business lias been a general election. At this the Coalition Government sought a popular mandate for its economic proposals. The party now returned to power is virtually pledged to maintain the traditions of sound finance and honesty in all public contracts, but it cannot make bricks from straw, and the task which confronts our politicians is one that few will envy them. Gold Standard Suspension. Another major event of the year which must have a profound effect for good or ill on securities has been the action of the British Government in departing from the gold standard. A first effect was to appreciate the value of raw materials, such as wool and metals, and stocks of companies directly interested in these commodities quickly responded favourably to the change. Investors would be wise to view with caution any prospects of a boom based upon the depreciation of the sterling. The stimulus it has given is artificial, and it remains to be seen to what extent the change will ultimately benefit the Empire. If. as seems likely, the improvement following the exchange stimulant is made the basis of a statesmanlike policy of pooling the Empire's resources, then it may prove, as Lord Beaverbrook predicted when the vital decision was first announced, the first step towards a new era of prosperity for the British Empire. Lessons of the Year. A perusal of the tables shown above confirm in unmistakable fashion the point that has been emphasised over and over again in these columns, namely, that the chief trading banks would prove equal to every legitimate call made upon them. Profits have diminished and probably will diminish further in 1932, with dividend 'adjustments to match, but their stability is, if possibk', more secure than it was two years ago. The recent Commonwealth elections clearly indicated a recognition by the electors across the Tasman that it is through co-operation by the Government with the banks that Australia will win its way from the slough of depression. Both in Great Britain and in this Dominion an appeal to the country brought similar responses.

Another gratifying feature has been the rock-like stability of all our leading insurance institutions.

The year that is about to commence is likely to be at least as difficult for New Zealand investors as its predecessor. The Government must raise funds to carry on essential services and pay interest on the public debt. How it can solve the problem without adding to biirdens that are already crushing the life out of many industries is not easy to suggest. During the year that has just closed company after company has had to notify either a cessation of dividend distributions or a reduction in the rate. The probabilities are that this trend will continue.

The country's record of production during the year has been wonderful, and any improvement in the prices of our primary products would be quickly reflected in a move towards prosperity. There is, however, no reason to anticipate any substantial all-round advance in price levels, and even if it did come a considerable period would elapse before the results became apparent in profits of mer-

cantile institutions. Shareholders, therefore, must reconcile themselves to a year of smair dividend distributions, and in many cases to none at all. The Silver Lining, A notable aspect of the financial horizon at the present time is the fact that hot _ one of New Zealand's big financial institutions has shown weakness. No concern of magnitude has come a crash, and this is a record that many countries would envy.

Our balance of trade has been almost completely rectified by the rigid curtailment of imports, and if the Government could 6chemo to do with a few less millions,' without at the same time accentuating the unemployment difficulty, the Dominion would soon be on the road to a great recovery. Any further taxation might prove disastrous. Nineteen thirtytwo will prove a hard year, but there is good reason to believe that our pebple will emerge successfully despite difficulties that at present seem almost insuperable.

BANKS. ! Dec. 23, Dec. 23, Dec. 23, 1929. 1930. 1931. £ s. d. £ 8. d. £ S. d. Australasia .. 12 13 0 9 5 0 9 0 0 Commercial . 1 5 10 0 1» 9 016 5 E., S., and A. 7 5 0 5 0 0 4 11 6 Xat. (N.Z.) 6 13 0 550 400 Nat. (Aus.) . 7 17 6 10 17 6 10 0 0 X.S. "Wales.. 40262S00 28 10 0 New Zealand 2 18 6 210 0 2 5 0 Union 13 0 0 9 0 0 7 17 6 SOME POPULAR AUSTRALIANS. Dec. 23, Dec. 23, Dec. 23, 1929. 1930. 1931. £ s. d. £ s. d. £ s. d. Goldsbro' Mort 1 17 0 0 19 0 14 3 Aust. Glass.. 2 10 0 15 0 190 Brit. Tobacco 250 110 0 170 Col. Sugar... 47 00S2 0O40O0 All of the banks have shown lower profits, and, with the single exception of the New Zealand, have paid reduced dividends during the year, and, as a natural consequence, share values fell to low levels, but have since regained most of tht loss. Metals and Fertilisers. Dec. 23, Dec. 23, Dec. 23, 1929. 1930. 1931. £ s. d. s. d. £ s. d. Electro. Zinc (pref.) ... IIS 9 19 6 10 0 Mount Lyell . 1 19 0 18 0 1 0 10 Waihi 13 8 14 4 16- 2 Grand June. 14 2 2 3 7

Dec. 23, Dec. 23, Dec. £3, . 1929. 1930. 1031. , £ s. d. £ s. d. £ n. d. S.Z. Insurance 250 2102 0 9 South British 3 2 0 2 15 0 2 13 9 Auckland Gas 14 11 135 14 0 N.Z. Breweries 476200 186 Fukerolro .... 3 12 C 2 0 0 1 10 G Donaghy's Rope 1 16 0 1 14 0 1 0 0 Farmers' Trad. 089 070 0 <> 9 Milne, Choyce 176 130 0180 Wilsons Cement 2 13 1 19 6 1 la 0