THE MARKET Lower dollar, interest rates send investors scrambling

Press, 14 December 1985, Page 22

THE MARKET Lower dollar, interest rates send investors scrambling

By

ADRIAN BROKKING

Share . prices rose almost five per cent In five trading days this week, in sometimes frenetic activity, as a falling New Zealand dollar and a continuation of the easier trend in interest fates sent investors scrambling for • shares.

On Wednesday and Thursday Barclay’s index of industrial shares had the two largest increases in its history — 31.96 points on Wednesday, and 40.28 on Thursday. However, we should bear in mind that they were not necessarily the biggest jumps in percentage terms — a 40 point rise from 1200 to 1240 represents 3.3 per cent, and a rise from 1820 to 1860 is only 2.2 per cent. All the same, they were spectacular gains, and at yesterday’s close of 1864.71 points the index was more than 25 per cent higher than at the beginning of the year. But it is the shares of only a few companies — albeit all

spectacular performers — that do the pushing. The bulk of listed companies is not moving anywhere near as much, and a “two-tier” market has developed. ... ■'■■ ■ , The so-called investment companies (some • call them “blue-sky” companies, and some of the older generation of market watchers have been heard to talk of “paper-shuf-flers”) continue to capture investors’ attention, and Equiticorp, Chase, and the daddy of them all, Brierley Investments, had very sharp rises during the week. Chase put on 45c during the week to close at 568 after touching 570, and Brierley Investments also rose 45c since the previous Friday — making its chairman, Mr Ron Brierley, another J 6 million richer, at least on paper. At one stage the shares sold as high as 835 c, but they closed yesterday at 815 c.

Equiticorp gained 15c during the week to 280 c, but gave up 5c yesterday to close at 275 c

—10 c better than a week ago. On the whole the market reacted positively to Thurs-' day’s economic package, but Friday’s catch-up by some market leaders that are also large exporters no doubt owed more to the falling dollar. In any case, although the measures announced are consistent with Government economic policy, they are not much more than a sop to farmers and do not really come to grips with the question of import protection — one of the remaining major distortions in our drive towards an untrammelled freemarket economy. The latest measures only free items, not produced in New Zealand; although it may lead to lower inflation to the extent that money is spent on imports at the expense of consumer goods produced locally, it does not put any pressure on prices of domesti-cally-produced items. Together with the other major distortion in the econ-

omy — an industrial relations structure that is totally inappropriate to the kind of economy the Government appears to want to put in place — it leaves room for strong inflationary measures to remain. The Minister of Finance, Mr Douglas, and his associate Ministers appear determined not to waver from the path they have chosen for the economy, and it certainly seems that policy is beginning to achieve its ends.

Domestic interest rates are falling while those of some of our overseas trading partners appear to be rising. This would tend to lead to a downward correction in the New Zealand dollar, which could be reinforced by any outflow of international money because of reaction to our high external deficit and perhaps the planned anti-nuclear legislation.

This would be good news for our exporters and for those companies with substantial overseas interests or activities.