SHAREMARKET The bears remain in charge

Press, 21 November 1987, Page 28

SHAREMARKET The bears remain in charge

By ADRIAN BROKKING Fears that White House and U.S. Congressional budget negotiators will fail to reach a meaningful agreement this week-end sent shivers around the world’s stock markets yesterday, setting off a round of sell-offs. The New Zealand market fluctuated during the week on small price movements, but the Barclays index of industrial shares had its sharpest fall yesterday — 58.39 points to 2162.11. The loss for the week is

exactly the same 58.39 points. It represents a fall of 2.6 per cent, and the market is now at its lowest level this year and indeed for 21 months. Compared with its peak of only two months ago it has fallen 45.5 per cent. Before yesterday’s falls the New Zealand sharemarket had been attempting to stage a mild rally, and at one stage had recovered more than 90 points on Barclays index. However, jittery overseas markets continued to cast their

shadow, and a number of unpleasant developments locally did not help to maintain such optimism as there was. The large amount of cash that must be found to take up the rights issue of Brierley Investments — $225 million — is depressing the market, while fears for the financial stability of some companies remain. Brierly Investment shares continued their slide yesterday, and closed 5c down to 228. The announcement yes-

terday by Kupe Investments will do nothing to allay these fears. Although Kupe directors reaffirmed that the company remains viable, they admitted to $89.3 million unrealised losses through the stockmarket crash.

To recoup some of this, they exercised a “put” option requiring Judge Corporation to take 13.6 million Ariadne Australia, Ltd shares for a total of $NZ46.3 million — forcing Judge to take a further $36.4 million loss.

They said they were determined to maximise the options value in spite of deciding earlier that its exercise might “destabilise” Judge’s negotiations with associates.

Should Judge Corporation default in the payment Kupe would sell the Ariadne shares and become an unsecured creditor of Judge for any shortfall.

Obviously, it all hangs on how well Judge Corporation will come out of its present troubles. The Kupe announcement was made after the market closed. A little earlier the stock exchange said in a statement that it had censured Renouf Corporation for the confusion surrounding its aborted take-over bid for Impala Pacific Corporation (a company in the Ariadne stable) and other deals.

Disagreements between Sir Francis Renouf and Mr Bruce Judge did not help and neither did the changes in personnel. For instance, Renouf Corporation this year has already had three different chairmen: Sir Francis (twice), Mr Judge, and Mr Mark Horton.

Renouf Corporation yesterday topped the turnover after reports that Sir Francis Renouf was moving to regain control of the company he founded from Mr Judge’s Ariadne Australia. The price of the .shares was unchanged at '6oc.

As for the outlook — there are as yet no bulls

in sight. It is no good saying that the fundamentals are attractive, in the present mood of the market, apart from the difficulty of establishing at what level the ratios and the fundamentals should be.

As pointed out here before, the criteria in the assessment of a company’s share price vary all the time, and the difference between the peak of the trade cycle and the bottom of it are quite substantial. Profitability expectations at any time during the cycle set the tone, of course.

But this sharemarket is at present too confusing to be able to form a reliable opinion of over-all profitability. Some companies will do very well. International paperpulp markets are booming, and companies like Fletchers, N.Z. Forest Products and Carter Holt should turn in bumper results. How some of the investment companies, that mushroomed in the last few years, will fare time alone will tell.

Meanwhile, corporate activity is continuing as some large companies are increasing their holdings in their subsidiaries. Fletchers announced that it intends to go to 100 per cent shareholdings in its two Canadian subsidiaries, Crown Forest Industries and British Colombia Forest Products.

Magnum Corporation is bidding for the balance of the Progressive Enterprises that it does not already own. This is an example of the opportunities provided by the world-wide fall in share prices. The holdings can be acquired at prices that would be a substantial discount over what those companies would have expected to pay two months ago.

In Fletchers’ case they are assuming full control of two very well-per-formed forest companies,