Aust. Shares Now Better Prospects

Press, Volume CVI, Issue 31275, 23 January 1967, Page 10

Aust. Shares Now Better Prospects

New Zealand investors, faced with the prospect of a declining share market this year, should now turn their attention to investing in Australian stocks available to them in the limited market in this country.

Whereas there is little confidence of growth in the New Zealand economy this year, the picture in Australia is almost the opposite.

There, some of the uncertainties of the last few months have been removed: the drought has gone, although its effects linger; the export outlook is bright; and there are prospects of record wheat crops and rising production.

The contrast in New Zealand is of falling wool prices, a likelihood of a deceleration of business activity, and an unsolved balance-of-payments problem. Further pressure has been put on lending institutions to take up Government stock, and still more economic measures are in the wind. Across the Tasman, financial conditions are likely to remain fairly easy at least until February or March. Interest Rates Recently, two finance companies reduced their borrowing rates on current issues of debentures and unsecured ! notes, but in New Zealand the Recent N.Z. Equh Stock Sales Aust.

trend has been for higher interest rates. Just how easy is it to invest in Australian, stocks since their trading was restricted by the last Budget? These restrictions stopped New Zealanders buying Australian shares here and selling them in Australia. Now, the buyer can buy Australian shares only from another New Zealander, and these shares are then held by the Reserve Bank.

Dividends These shares are bought and sold in New Zealand currency, but any dividends paid are in Australian currency and can be retained as such. The shares cannot be sold for overseas currency, and another snag is that the range of shares held by New Zealanders willing to sell is naturally limited. Fortunately, there seems a ready market here for Australian leaders, led by the glamour stock of last year, B.H.P. How long this will last at the present premium rates is hard to tell. When restricted trading began in October, the turn-over for some time was light. It is now increasing. If the fall in New Zealand shares continues, accompanied by a rising trend in Australia, then it seems probable that interest will shift to these limited Australian stocks. Premium Buying pressure could force the present, relatively low premium, up to near the old rate of about 8 per cent ruling on shares before the Budget. The table shows the trend in premiums for overseas shares since the market opened for the year. The 15 stocks traded at a premium ranging from 1 to 6 per cent. Each New Zealand transaction was compared with the Australian price, ruling on the same day. The mean average of the premiums paid for these 15 stocks is 3.4, but a weighted average would be nearer 3.0. The mode is also 3.0, whereas the median is 4. Naturally, the premium depends on the supply of and

demand for a stock, and also on the market evaluation of the stock’s prospects, but it seems fair to say that so far in 1967 the premium has been 3 per cent. Second Market This week-end Australian stockbrokers must make up their minds on their attitudes towards Second Market Proprietary, Ltd., a company aiming to set up an alternative share market in Melbourne and Sydney. The second market opened for business last Thursday, and is meant for those investors who already know what they want to buy or sell. The brokerage rates ralent Recent Aust. Premium Price Sales per cent (samp davY

charged will be half of those charged by the Australian Associated Stock Exchanges. The company admits in its advertisements that the exchange numbers provide a wide range of services and that they have high overheads which justify the brokerage rate charged. The Second Market aims to provide cheaper facilities for (hose who do not want those services. It would -seem that the Second Market relates to the exchanges as discount houses do to department stores: no overheads, no service, take your choice of the shelf yourself and pay cash.

No Listing Fee The company will deal in all securities accepted for listing on the stock exchanges, and companies do not need to apply for listing. They will not be charged a listing fee either. Transactions will be on the basis of the company’s terms and conditions of business. Some of the rules are:— Full knowledge and concurrence of the parties to each transaction. No favoured clients. All orders accepted under definite rules of priority. Buying and selling limits will be adhered to. The company will not judge on the merit of the stocks it handles, or on future price needs. . Any client may ask for an independent investigation of any transaction in which he has an interest. This will be done by the auditors of the company. Rules Adopted In its advertisements the company says that it adopts the rules and safeguards laid down by the limited states securities and Exchange Commission, the authority set up in the thirties by the limited States Government to safeguard the interests of especially the mall investors. The Second Market company says it particularly adopts the S.E.C. view that it is undesirable for brokers to trade for their own account in shares for which they are also trading on a commission basis, out of which a conflict—or seem-

ing conflict—of interests may arise. It says it will not speculate on its own account. The company also says that it has taken out staff fidelity bonds and that it, so far as they are applicable, will comply with the requirements of the Sharebrokers’ Acts. The Second Market, therefore, can operate cheaper because its. costs are lower. These costs are of three kinds:—

There are the cost of administering Association of Stock Exchanges, the operation of the exchanges themselves, which are unavoidable by the official exchanges. There are the costs of additional services by brokers such as advice, company appraisals, client paper work and credit accounting, etc. There are probably many investors who do not want these.

Then there are the costs of service in the narrow sense. Again many investors may want to dispense with that in return for cheaper charges. The Second Market company’s premise seems to be that the market can be differentiated, and that a different price can be charged in each sector. It intends to cater for the non-luxury range. Whether the premise is sound will become clear in time; in the meantime the only criticism one can offer relates to the first class of costs discussed above. One might argue that the Second Market should bear a proportion of the costs of setting up the existing market place the facilities of which it proposes to use.

8. d. cents cents AMPOL 5 3 65 62 5 A.W.A. 18 0 223 210 6 N.S.W. 44 0 545 i 530 3 BORAL 16 6 2041 199 3 B.H.P. 54 3 673 656 2i CARLTON 29 10 370 358 3 CARPENTER 18 9 2321 223 COLES 10 3 127 123 3 C.S.R. 24 0 2971 288 E.Z.I. 21 1 2611 254 3 FELTEX . 4 2 511 50 3 I.C.I.A.N.Z. 32 6 403 381 51 WALTONS 8 4 103 101 2 W’WTHS .. 10 8 130 131 1 MT. ISA .. 35 0 434 415 41