The Press TUESDAY, JUNE 21, 1966. Freeze For Shareholders

Press, Volume CVI, Issue 31091, 21 June 1966, Page 14

The Press TUESDAY, JUNE 21, 1966. Freeze For Shareholders

Since Thursday’s Budget announcement sharebrokers and the holders of shares in overseas companies have been suffering the kind of shock that motor-car owners and dealers would have felt if they had been told that they could not sell their cars except for sterling-area currency and for about a tenth less than the local market price. Now that shares can be bought only by persons who already hold overseas exchange they command no premium in New Zealand over their market quotations abroad. Like all import and export regulations, the new restrictions are directed against the use of overseas funds for purposes other than those approved by the Government; they cannot, alone, solve the basic problems causing the scarcity of overseas exchange. Not surprisingly, some shareholders regard the restriction as an unfair intrusion on their right to buy and sell assets within New Zealand as they choose. The means ty which the shares were first obtained will have been many and various, and, for the most part, perfectly legal. Some will have been bought with money earned by New Zealanders or companies in New Zealand but not remitted through the banking system. By no means all that the Government expected to receive into the official pool of overseas exchange has been remitted through the banks since the receipts from royalties and commissions and similar earnings were required to be returned from abroad through the banking system. Some of this money may well have been used, or bought at a premium, for the purchase of shares which could then be imported by New Zealanders and traded here.

Because overseas exchange outside the official channels is scarce, New Zealanders have been prepared to pay a premium to obtain it, or to obtain the shares bought by the initial holders of the currency. Overseas shares have been desirable acquisitions for several reasons. As assets deriving their value outside New Zealand, they, like foreign exchange, are a bulwark against the consequences of a devaluation of the New Zealand £; they are also a means of acquiring overseas exchange to buy goods and services abroad. The volume of New Zealand company shares on the market has been insufficient to satisfy the capacity and incentive of New Zealanders to invest their money profitably at home. The initial purchase of these shares means a loss of overseas funds over which the Government now finds it would prefer to have control by way of import licensing.

The loss of business by stockbrokers and the loss in local value to shareholders are, of course, incidental, though important consequences, not the objective of the new restrictions. The Government’s action simply puts shares in line with the export and import controls it exerts on other assets. It has endeavoured to prevent the importing of shares except without remittance. It wants to ensure as far as possible that the overseas receipts from the sale of overseas shares will be returned to New Zealand in the same way as the receipts from other exports. Persons who wish to realise on their overseas shareholding in New Zealand currency are bound to comply with the Reserve Bank requirement or import goods for eventual resale. This kind of restriction is not likely to defeat anyone who is really determined to acquire overseas exchange outside the official channels; it might, indeed, stimulate a black market that has not existed before. New Zealanders’ investment funds in New Zealand currency will more likely be directed to the local market. This includes Government and local body stock on which the interest rates have been raised to more attractive levels. The restrictions on the transfer to the New Zealand register and on the resale of Government stock issued in the United Kingdom will curtail, or at least delay, profitable transactions which frustrated the efforts of the Government to raise loan money overseas. This stock carries a higher interest rate than issues in New Zealand. The raising of the transfer fee reduces the benefit of the higher interest rate and the year’s delay between purchase in the United Kingdom and resale in New Zealand will slow the rate at which stock is bought in the United Kingdom for transfer to New Zealand, where it commands a higher market price. Although the objectives of these Budget moves are reasonable, the inevitable side effects may be disruptive and evasion of currency restrictions may become more devious.