COMMERCIAL Can Australians prop their sharemarket?

Press, Volume CXI, Issue 32525, 8 February 1971, Page 17

COMMERCIAL Can Australians prop their sharemarket?

(By the commercial eidtor of "The Press") The Australian sharemarket last week showed a welcome resistance to a series of shocks which would have been enough to undermine anyone’s confidence. By contrast, the London market took the bad news—and there was plenty—very hard indeed.

Yet the attitude of British investors may well be the more important influence in the longer run. There can be no doubt that the recent boom in mining shares owed much to the influx of British investment capital, just as the subsequent weakness was in large measure the result of the withdrawal of some of this money. And the London market is rather despondent. The troubles of the oil companies in the Middle East, and the crash of Rolls-Royce played their part of course, but the Minsec fiasco will convince a lot of Englishmen that the Australian sharemarket is not a good place to be in. No fly-by-night The reason is that Mineral' Securities was not regarded in England as a fly-by-night of the kind so common last year—where a company whose assets were three holes in the ground and hope had their shares run up until the holes suddenly lost their charm and the hope evaporated.

After some debacles last year, which even led to failures among London brokers, overseas investors begun to shy from speculative issues, and to concentrate on the heavy-weights. This is what makes the present difficulties so serious in the eyes of British investors.

Mineral Securities had come to fill the symbolic role that everyone wanted for all that should be progressive and scientifically organised in indigenous mineral financing and investment.

Linked fortunes Also, its extensive purchases of controlling interests in mining enterprises meant that the fortunes of an extraordinary number of listed companies were intimately dependent on the fortunes of this one company. And a debacle like this has wide repercussions. The suspension of the trading in the shares of the 13 affected companies prevents heavy losses in these shares themselves, but the fear that other (good) shares might have to be sold to pay for bad shares sends markets into a panic. Confidence is also jolted by

the thought that if a highly regarded firm like Mineral Securities can fail, then clearly 18 months of speculation in Australian mining stocks may have still further victims to claim. To this must be added the fact that on its own admission Minsec made some pretty elementary mistakes, such as overreaching itself on a falling market, and borrowing short to invest long (a situation bankers learn in primary school to avoid). For all that, as earlier remarked, the Australian mar-; ket took it rather coolly. At! the same time, the affair has probably been underrated so; far.

If British capital completely [withdraws from the Australian market, everything will depend on whether Australia has the internal resources to underpin the present price level. Of this there must be some doubt.