“Govt policy may cause market slump"

Press, Volume CXIII, Issue 33407, 13 December 1973, Page 20

“Govt policy may cause market slump"

The decline in the sharemarket since July might well reflect a growing uncertainty in the minds of many that the best steps were not being taken to contain inflation and rising prices, said the chairman of the Christchurch Stock Exchange (Mr J. B. Hindin) at the annual general meeting of the exchange.

, This seemed to be borne out by the fact that the decline became more pronounced on the announcement of the introduction of (virtual profit, control methods to check price rises, and the market had indeed been lists less since then, he said. "The decision to impose a, virtual control on company! profits on the grounds that companies should share in (the burden of the steps taken to keep prices down, is a curious one,” Mr Hindin said. Not equitable ! ‘‘According to the financial: statistics compiled by the Reserve Bank covering a rep-: resentative group of public! companies, company profits; as a percentage of shareholders’ funds, actually de-1 dined 1 per cent in 1971 and; again 4.2 per cent in 1972.: There was a 2.1 per cent rise] in 1973. “On the other hand the! nominal weekly wage rate! jindex according to the De-! ipartment of Statistics rose, 22.7 per cent in 1971 and 8.7 per cent in .1972. For the! -quarter to March, 1973, there: iwas already a further rise of! 15.2 per cent. “This does not seem to indicate any very equitable I sharing of the burden. “Besides, profits fail from time to time (as they did in 1971 and 1972) but there is! no suggestion at such times! of a sharing of this burdenwith other sections of the; community. . “All that profit controls! achieve is to dampen incen-! tives for increased produc-l tion, greater efficiency and!' the will to develop new en-|. terprises. It stifles economic! growth and must inevitably! lead to a diminution of the! ‘pool’ from which many ofp the future wage increases;must come,” said Mr Hindin.; ; Referring to the New Zealand Superannuation Scheme, Mr Hindin said that it had (been suggested that existing' 'superannuation schemes! might be allowed to “coiexist” provided they match; up to certain criteria. “The concept of layingdown acceptable criteria fori private schemes is a curious!; one, as presumably if the Government scheme is so ; superior, then one would have'.

fithought it would be able to :! recruit any number of contributors, without having to force them into it by legislative compulsion." ; Mr Hindin said that a dis--1 turbing feature of the New Zealand scheme was the tremendous potential it would give the Government for conitrolling industry by investing in New Zealand companies, and eventually getting coni'trolling interests. r “The funds which will be generated are gigantic and the White Paper estimates that the size of the fund might be $2OOO million 12 years from now. “This will approach the (total funds expected to be (owned by all the life offices :-at that point, and no doubt -would overtake them rapidly (thereafter. A significant portion of these funds is expected to be invested in the (sharemarket and unless there are safeguards, this potential ; concentration of power could ‘amount to eventual State dictatorship of key industries in (New Zealand. “It is respectfully suggested that the legislation should' provide that any shares or other securities owned by the New Zealand Superannuation Fund should automatically be deemed to be non-voting. It should also provide that the Fund be debarred from exercising its rights to accept or :reject a take-over for its. (holding in a particular company until the majority in 'value of the shareholders! jhave decided one way or the iother and then, and only! I then, it should exercise its ' j right and exercise it in ! accordance with the majority. I “These two provisions I would go a long way to con-: tradict the suggestion made! | in some quarters that the New Zealand scheme isi (nothing but an attempt to get j (ultimate control of industry} | in New Zealand.” Wise investment On the Trustee Amendment (Bill, now before Parliament. Mr Hindin said that the inclusion of certain ordinary! shares and company'-deben-! itures in the group of Authorised Trustee Investments was! a welcome step. “Although most modern; 'wills and other trust mstru-: ments specify shares and!

debentures as falling within - their ambit of authorised > investments, many existing - trusts still do not have this power." . “It also gives legislative and therefore official recog- . nition to the benefits of wise j investment in company . shares and debentures Com- , pany shares provide a hedge ’ against inflation in the med- ‘ ium to long term, and company debentures provide a a very easily administered med ; ium of investment for moneys . to be placed at fixed interest, i The immediate return from J a company debenture is ■ usually higher than for shares > but there is no capital appre- : ciation. ’ Long term benefits . “It is true that the share . market can be disappointing . at times and it does fluctuate , in the short run. In the med“ium to the long-term, how- , ever, it always goes higher than any- previous high point, from which temporary de- ’ clines may have occurred 1 “In this context graphs of average share prices are not .necessarily the best criteria of performance, as people do not invest in the index but rather in specific shares they 1 select, or which have been recommended to them by their advisers. “Trustees and administrators of funds, whether superannuation or others, recog‘nise more and more that longterm benefits accrue from the (investment of a significant portion of their funds in carefully selected company shares,” Mr Hindin said. ! U.E.B. carpet orders U.E.B. Industries, Ltd, has (recently won a large number Io" overseas orders. One of (the biggest contracts is for (the new South British Insurjance building in Sydney, which requires more than 8000 square yards of tufted (carpet. Other orders come (from a re-furnishing programme for New Zealand embassies, high commission i offices and consulates. InI creased production at U.E.B.’s carpet mills had fallowed the company to .handle overseas commercial -contracts without affecting the balance between supplies [to the New Zealand market and those for export, the (company said.