Commercial Market mixed but steady

Press, 25 February 1980, Page 20

Commercial

Market mixed but steady

Bv

ADRIAN BROKKING,

commercial editor

Prices were mixed on the New Zealand sharemarket last week, but generally the market was steady, helped by excellent company reports. The report by Dunlop New Zealand, Ltd. stood out. Profit increased 32 per cent, bu*. this was not unexpected after the good first half — it was the jump in annual dividend from 25c a 100 c share to 40c that took investors’ breath away. In the last three years this company has doubled its profit and dividend, and is now firmly ■ established as one of the bluest of blue chips. The shares rose 45c to 320 c during the week. An increase in exports, and the benefit from new product development, contributed to the good result.

The shares of Ivon Wat-kins-Dow, Ltd, gained 12c to 182 c after the company announced a record profit, a higher dividend, and a one-for-seven bonus issue. Increased . demand for chemicals and improved productivity were major factors in I.W.D.’s result, and the current buoyant nature of the rural sector should, see further good sales of agricultural chemicals.

Last week's profit' boost by .James Aviation was a good performance by a spreader of chemicals, and two regional rural groups, J. E. Watson and Hawkes Bay Farmers reported to be running ahead of last year, if only by modest amounts. Watson shares gained 10c to 260 c, and H. B. Farmers rose 5c to 205 c.

Williamson Jeffery also reported an excellent result; profit for the half year to December 31 rose almost 35

per cent, and the directors reported that sales continue to be buoyant. Meanwhile, interest rates continue to creep higher, as General Finance. Ltd, increased its rates for 2 and 3 year debenture stock 0.25 per cent to 15 and 15.25 per cent.

This is the first of the major finance houses to launch a new prospectus on the money market this year. The group funding manager (Mr G. T. Bowles) said at a prospectus function in Christchurch last week that General Finance wanted to act responsibly rather than trigger off a scramble for funds between the finance houses. He said that the rates offered reflected market conditions. However, he considered that there was a need to encourage long term investment to assist in the country’s economic stability. The company hopes that its conservative stance on its new interest rates will inject a note of stability into the competitive situation between the finance houses. There is also a mood of resistance to effective borrowing rates of round 21 per cent, especially among newly-floated businesses facing considerable financial strain in their first year, Mr Bowles said. He added that, if overseas conditions flowed over into New Zealand there could be a fading of rates towards the end of the year. U.S. interest rates were expected to be falling towards the end of the year, he said.

However, current indications are almost the opposite. International foreign exchange markets are gird--

ing their loins for an interest rate war.

A number of nations, including West Germany, and the Netherlands, might have to raise their rates to attract funds to keep their currencies stable after United States r ises in the last week.

Japan, France, and Switzerland have already effectively raised their rates or changed foreign exchange |regulations to protect their currencies, economists from leading banks said. One result of leapfrogging interest rates might be the choking off of ‘ investment, and a worse-than-forecast world recession this year, bringing domestic political problems. The United States, and other industrialised countries are looking to increased interest rates to demand inflation, but any rise triggers competing increases from other nations, because of its effect on foreign exchange markets.

Japan raised its official discount rate one per cent last Monday, but this change was now widely considered to be insufficient, and the yen has continued to slide against the dollar. France increased its Treasury bill rate, and Switzerland has taken steps to prevent an outflow of funds.

The United States moves put the West Germany mark under considerable pressure, and the dollar was trading around 1.7465 marks compared with 1.7200 marks in early January.

Several economists said that West Germany might have to consider raising its rates if the dollar rose much above 1.74 marks. The Netherlands was likely to have to follow any move by West Germany, because of the close linking of their economies. Other members of the European Monetary .System, which includes most mem-| bers of the Common Market,would then come under pressure to raise their rates.

One country which might he immune from the leapfrogging was Britain, because it has already imposed record rates in an effort to control inflation.

Sharbrokers approved in principle the formation of a “New Zealand Stock Exchange” last week, but in the meantime this will not change the current mode of trading in shares. At present there is a Stock Exchange Association of New Zealand, made up of the four regional stock exchanges. But investors have enjoyed a national market for some years, as all exchanges are linked by telex and telephone, and reporting of sales is done on a national basis. Of more immediate interest to investors is the decision by the Stock Exchange Association to seek higher brokerage fees, which will have to be approved by the Government.