PLUNGE BY SHARES

Press, Volume CVI, Issue 31089, 18 June 1966, Page 1

PLUNGE BY SHARES

Budget Ban’s Effect (New Zealand Press Association) AUCKLAND, June 17. Investors and brokers are resentful, even angry, at what is widely considered a breach of faith by the Government. For them, the main effect of the Budget announced by the Minister of Finance (Mr Lake) has been the immediate stopping in dealings on New Zealand stock exchanges in Australian and British stocks and shares. At one blow this has slashed something like £25 million off the market value of holdings by New Zealanders of Australian and British stocks and shares.

“At least' temporarily,” it has: (1) Cut the business done by brokers by anything up to 50 per cent. (2) Denied intending investors in the future the freedom to put their money into leading Australian companies in which new Zealanders have traditionally been large shareholders. (3) Denied several thousands of employees of overseas companies the chance of investing in the shares of their company.

The effect of the Budget measure is to prohibit any transactions involving Australian or other sterling shares in exchange for New Zealand currency or other New Zealand assets.

In the past it has been possible for investors using New Zealand currency to acquire overseas funds perfectly legally for the purchases of, say, Australian shares. The premium incurred in these transactions has recently been of the order of 10 per cent, although it has been higher. This, in turn, has meant that there has been a premium on Australian shares traded locally on New Zealand exchanges compared with their prices in Australia. As funds raised by the sale of such shares overseas if remitted to New Zealand must be transferred through normal banking channels, this system —and the premium—is automatically at an end. It is still open to New Zealand holders of overseas shares to sell them overseas for sterling area currency and to use the funds so acquired to buy other securities. No Trading Quotation of overseas securities was suspended on all New Zealand stock exchanges at the beginning of the morning session yesterday. This affected stocks of about 60 Australian and British companies on the official Stock Exchange list. It included even those overseas companies such as Bank of New South Wales and Colonial Sugar Refining which have New Zealand registers for their shares.

Dealings were even impossible in National Mortgage and Agency Company shires. The company’s activities are nearly all in New Zealand and it is generally thought of as a New Zealand company, but it is London-based. Many, if not most, portfolios held by New Zealand investors include Australian shares. New Zealand investors hold

about 10 per cent of the largest Australian company, Broken Hill Pty., which has a capital of £133 million, and 12 per cent of Bank of New South Wales. They were original subscribers to Woolworths (Sydney), Ltd. Big Investments Most big investment funds, such as those held by insurance companies, and investment companies and unit trust hold a considerable proportion of Australian stocks. At December 31 last, for instance, the first New Zealand Unit Trust held 42.94 per cent of its portfolio in Australian stocks.

Paradoxically, the enforced cessation of the flow of investment money into Australian shares may mean that more is available for investment in New Zealand issues. This could, in turn, give badlyneeded support to the local sharemarket. It could even lead to some shortage of the scrip of leading companies. Brokers’ Loss It is estimated that Auckland brokers’ dealings in Australian shares varies between 20 per cent (in 1960, for instance) and as high as 50 per cent of the value of their total transactions, depending largely on the state of the respective markets and the amount of the premium on funds in the “free” market. But it is impossible to estimate how much of this investment money will now go into New Zealand shares. A good deal may be switched into fixed-interest securities. The chairman of the Auckland Stock Exchange (Mr M. P. Hay), today said that investors who had bought Australian shares in good faith in the past now did not have a local market for them.

For many years, many investors had believed that if they bought shares, even at a premium, they would be free to sell them when and where they wanted. It was a breach of faith on

the part of the Government. Mr Hay said there was no precedent, even in war-time, for such a measure.

He pointed out that there were a number of large Australian companies, such as Australian Consolidated Industries, which had largescale operations here. Local investors naturally expected to be able to invest in such concerns. The same applied to the many thousands of New Zealand employees of such companies. Advice Not Sought Mr Hay criticised the fact that the Government had not sought the advice of the stock exchanges before taking the step it had. If there had been consultation it should have been possible to avoid the disadvantages of the present scheme and perhaps to have achieved just as good results. “The market has shown a demand at around 10 per cent above bank rate by a large number of people who want to invest in overseas companies for one reason or another,” said Mr Hay. “They will not now want to do so any the less—rather more. “This wilt tend to drive underground what has been a perfectly legitimate way of spreading investments.” It would tend toward a black market, he added. “Discrimination” The amount of overseas Investments held by New Zealanders had been estimated at about £250 million. Most were genuine investments extending over many years. Now they had to be arbitrarily chopped in value by 10 per cent. The forced seller, such as estates would be hardest hit. The persons who could afford to hold off for 10 years or so might find things different. This was discrimination, and whereas it might help the country’s overseas funds on this one occasion, it would not do so again. It was a diminution of capital and no opportunity was being given of replenishing it Mr Hay said there was some evidence that high-rank-ing members of the Government did not realise that the effect of the measure would be to cut off the market for Australian shares. Mr Hay emphasised that the stock exchanges had still not had enough opportunity to realise the full implications of the move. It was probable that other undesirable features would appear.