STOCK MARKET YEAR

Dominion, Volume 32, Issue 68, 13 December 1938, Page 15

STOCK MARKET YEAR

Declining Sales And Prices

TRA DING DIFFICULTIES

Dominion Special Service.

CUIRISTCIIUROII. December 12.

“Th.% year has been a particularly difficult one for trading, a year in which hopes have failed to mateiialize,” said Mr. 11. Kitson, chairman of the Christchurch Stock Exchange, in his address at the annual meeting of the exchange. Upward trends have been short-lived and have been cheeked by sudden alarms. “Our markets opened in the New Year with normal conditions. Government 4 per cent, loans ex accrued interest were firm at, 2 to 3 per cent, above par. Gilt-edged and industrial securities were holding their own with a fairly constant turnover of sales. In the first six months of the year sales gradually fell and prices, with spasmodic short-lived rises, began to drift.

“The next quarter saw an improvement. all round, with the exception of Government loans. The markets were more buoyant till the end of the quarter. and some confidence was evident. The European situation became ugly, our overseas funds were causing some anxiety, trading bank returns were indicating trouble ahead, and it was evident that the markets would not hold. Government loans for the first time since the conversion in 1933, were traded in below par.

“The economic structure of the Dominion looked top-heavy, and the election in October further unsettled conditions. There were many exaggerated and impossible statements made by candidates on the election platforms which caused considerable alarm to investors and others. In the last quarter the prices for New Zealand securities have fallen without interruption. Markets have been unable to stand up to heavy selling by overseas holders of New Zealand stocks. Government 4 per cent, loans, which opened at 2 to 3 per cent, above par in January, are now freely offered at a discount of 3 per cent

Restriction On Interest.

“It is difficult to understand why local bodies in New Zealand are still restricted to offering only 3i per cent, for new loans. The return on the Government’s loans is slightly in excess of 4 per cent, and local body existing loans can be bought in the open market, returning buyers 4i per cent, and in some cases 4J per cent. Any attempt to float a loan under 4 per cent, at par appears hopeless. “Apparently overseas investors are not happy holding New Zealand stocks and are prepared to make considerable losses to quit them. The fact that New Zealand has in the past, and promises in the future, to meet her overseas commitments is not considered sufficient security by overseas holders. This heavy selling pressure has been met to a certain extent by New Zealand investors and though it has meant money going out of the country it must not be bracketed with capital being exported for investment by residents in New Zealand. I would like to point out that by meeting this selling pressure from overseas the stock exchanges have helped considerably in steadying the decline in New Zealand’s credit overseas.

“The question that looms so large in our minds today is what extent of economic freedom are we going to be allowed in the future? Since capital is the target for much abuse and misrepresentation, it would be far less disturbing if the public thought a little 'before accepting blindly wild statements made by critics who are unwilling to accept evidence in conflict with their prejudices. Critics refer to the system as capitalism or profit making. They err in supposing that the unvarying result of business is profit. If previous accumulations of capital had not been readily avllable to owners of businesses during the slump, I hesitate to think what the depression might have been. It was necessary during those years to dig into capital reserves to meet the wage, material and tax costs which could not be paid out of income. During the gold mining boom hundreds of thousands of pounds were spent in wages and material with no return to the people who found the capital. No matter what the result of a new venture or enterprise the entire risk is concentrated upon the capital. I have yet to hear anyone suggest that losses incurred should be shared by the worker. Government's Task, “I do not maintain that free choice Is the automatic formula of social salvation. It is the task of the Government, and a very delicate task, to draw the line between licence and freedom. It is difficult to formulate rules and regulations which restrain one and encourage ano'ther, but it is the first essential of a good government to reduce the friction among all classes of those they govern. The freedom which is socially beneficial to (he worker and to the management must be shared with capital. “To brand a person as an enemy of his country because he has listened too intently to scaremongers and naturally fears the safety of his capital is unfair and unwarranted. Self-preservation is a natural law, and if you are hunted or threatened by an overwhelming force, should you be blamed for seeking cover? Some of those people who so roundly condemn investors who have bought overseas securities have themselves placed some of their funds beyond the Dominion. Did they do so because they were afraid or did they do it to obtain a higher return on their capital? It is impossible to distinguish between the capital that has gone overseas because of fear and that which has gone in the hope of a higher return. It is obviously wrong to put all down to fear because for many years, beginning long before the present Government came into power, New Zealanders freely bought Australian and overseas securities.”