Profit-taking Likely To Continue In Leaders

Press, Volume CVIII, Issue 31677, 13 May 1968, Page 16

Profit-taking Likely To Continue In Leaders

Profit-takers moved into the New Zealand sharemarket on the first three days of last week and the result was a sharp reversal in prices of leading stocks. Although there was some recovery in prices on the last two days, this was accomplished on turnovers about half those on the first three days.

The target for the profit-takers was leaders which have risen sharply in price since February. This rise was accentuated in the last week of April when the Reserve Bank index jumped 4.2 per cent and, as the accompanying graph shows, it was obvious that this curve could not hold its steep ascent.

Because of this and also because leading stocks were looking top-heavy in price, this wave of profit-taking was well-timed.

The intensity of this selling, and no doubt the attendant reaction, brought prices down more perhaps than expected in such a short time. The absence of sellers on the last two days was partly because of this rapid decline, and if the partial recovery of the last two days continues to restore leading stocks to near their peaks, there could be more profit-taking. The table shows how much profit could be made on the leaders. The first column shows the opening price for this year (in most cases about the year’s lowest); the second shows the share’s peak price; the third column each share’s price at the close of trading on Friday. Most fell further than this closing price during the week. N.Z. Forest 'or instance bottomed at 288 c; Fletcher at 180 c; N.Z. Insurance at 288 c; and N.Z. Refining at 620 c.

Although rises for the week outnumbered falls more than two to one, this gives a false impression of trading for the week. Christchurch Sales Turnovers on the first two days last week in Christchurch were exceptionally heavy, and the turnover of 48,000 on Tuesday was the highest daily total since records were begun five years ago.

The bulk of these sales were in leaders, which were easier. Sales on the three remaining days totalled about 60,000 shares, or 28,000 less than on the first two days. For the week over-all, leaders figured mainly among the falls. The nses, which comprise largely secondary shares, suggest chat sellers of leading stocks may be turning their attention to lesserknown companies with good prospects and higher divide' 1 yields on shares. Australian shares, as the

premiums suggest, had their busiest week since last June when fear of devaluation set off a buying wave. Graph Shows Rise The graph shows the steady rise in share prices since the beginning of this year. The buying appears to have been promoted by the attractive dividend yields offering in February and optimistic talk of the effects of devaluation. As well, sellers during 1965 and 1966 jeemed prepared to reenter the market, and this included institutions as well as the smaller investor. The rise was relatively uni-

form until the end of March. From there, at the (A) marked on the graph, the the curve began to steepen, aided by more releasing of import controls, improving wool prices, and the favourable trade figures for February. Optimistic talk by the Minister of Finance (Mr Muldoon) again pushed up share prices from the point marked (B). However, at (C) the Wool Commission announced plans to dispose some -of its large holdings from previous seasons and the New Zealand Institute of Economic Research

forecast a depressed year beginning from June. This appears to have contributed to t h e hollow through to (D) when improvements in the balance-of-payments position were announced.

At (E) the market appears to have become caught in its own momentum, perhaps carried along by the mining boom in Australia. The Wool Commission also announced that it was optimistic over sales of its stockpile, and Mr Muldoon an nounced that New Zealand's current account in April, May or June could go into a surplus for the first time in years.

The $64,000 question now is, where will the market go to from here? Some seem to think it will continue its up-

ward trend but more in secondary stocks, rather than in leaders. Others believe it could fall to its level of about the end of March. If the economy appears to be improving more rapidly than expected, then secondary stocks will become a safer proposition, with the added advantage of higher dividend yields than the leaders (although perhaps this may not compensate for the greater risk involved). The scarcity of scrip is likely to keep the trend firm, especially as no substantial share issue has yet been announced to take some of the pressure off the market. To give some idea of the expansion in activity, turnover of shares on the Christchurch Stock Exchange so far this year is 34.4 per cent higher than at the asme time last year.

The daily average for the last seven weeks has been 27,865, against 16,681 last year.

The tempo has increased since the end of March and during this period turnovers were 42.4 per cent ahead of the same period last year. Profit-taking among leaders will release 'unds for either secondary stocks or Australian and in the latter field the premiums now ranging around 10 per cent make it an expensive business to buy Australian stocks sold in New Zealand infrequently.

If a share such as Steam Ship Trading is wanted, Australian shares, which might

be 8.H.P., have to be bought at a premium here, sold in Australia, and the proceeds used to buy Steam Ship Trading there. This involves three lots of brokerage and of Course the scrip has to be brought back to New Zealand. This is an expensive and tedious operation.

The alternative is investment in stocks other than leaders and this includes a number of shares which have been neglected. Property Sec. One of these is Property Securities, the Wellingtonbased group with a 67 per errt interest in City and Suburban Since February and up to the beginning of last week the shares have been hovering round 70-72 c. This share, paid to 100 c, has been under-priced and one reason is the as yet unproved profitability of the group. Also, a seller has been unloading about 15,000 shares on the market and these appar-

ently have now been sold. The result has been a change from a buyers’ to a sellers’ market and the price rose 8c to 80c last week On the 5 per cent dividend, this yields 6.2 per cent In their report last year, directors mentioned that the 5 p cent dividend would at least be maintained. Income from buildings bought or built last financial year suggests th possibility of a dividend rise and a rise in share price to round par value. P.T.Y. Industries. Ltd, the Putaruru timber merchant builder and land subdivider, surprised the market with its five-for-seven bonus issue last week.

The shares jumped 33c to 175 c and at this price the ex bonus value would be 102 c Although the 10 per cent dividend is unlikely to be maintained on this capital in the first year, the growth of the company is likely to make it possible within a short time Thus the shares look attractive at their present level. The profit growth, after a setback in 1964, has been spectacular, assisted in the latest year by a take-over. The 10 per cent dividend last year was covered 2.2 times. Business Personal

Mr A. Kite, assistant accountant with Wormaid Brothers (N.Z.), Ltd, Auckland, has been appointed accountant at the Christchurch branch.

Share c. c. c. A. Harvey - - 270 340 335 Fletcher 145 200 188 Nat. Ins .. 305 360 350 N.Z. Forest .. 226 304 298 N Z. Ins. .. 260 305 290 N.Z. Petrol. .. 120 520 440 N.Z. Refin. .. 485 655 62n Tasman .. 620 820 790 Win stone .. 303 375 370