INVESTMENT MARKET

Evening Post, Volume CXX, Issue 137, 6 December 1935, Page 14

INVESTMENT MARKET

A MELBOURNE BE.VIEW

BANK SHARES AND GOLD-

MINES

(Special to the "Evening Post.")

MELBOURNE, November 22.

The market in general over the last I few days has been comparatively quiet with a tendency to firm.' Individual issues have responded to improved reports and have made slight gains, but the market seems to be balancing and discounting the prospects of further improvement with the present apparent rise in interest rates and the slight general uncertainty in the international position, which makes investment, as far as market values are concerned, a little bit more difficult than was the case when purely economicl changes were almost the sole determinant of values. Now that the position is changing almost daily, the considerations of international politics weigh heavily upon the market. In this respect Australian security prices are becoming to an increasingly greater extent influenced by overseas markets and overseas conditions. This has been shown by the recent market movements, which have followed American and particularly English security prices to a very large degree. Internal conditions appear favourable for the maintenance of the present business improvement, and already forecasts are being made that the Christmas trade will show a greater degree of prosperity than has been apparent for many years. . THE FIJI BOOM. Mining shares, and particularly speculative issues which have yet to be proved, are showing an increasing tendency to fall from favour. Tlie Fijian boom of a few months ago appears to be definitely over and while we can expect a revival of interest (as undoubtedly the field has wonderful prospects), yet there is little likelihood that the extreme speculation of a few months ago will be repeated. For those speculative issues, a great deal of' speculative buying on the market values, rather than on the intrinsic worth of the mines, is lacking, and the present decline in values is partly the result of liquidation on the part of speculators and an absence of speculative buying. The stage is being reached when those gold-mining companies of definitely proved worth will show a very satisfactory investment return.

The leading producers. Mount Morgan. Limited. North Kalgurli (1912), Ltd., and Golden Plateau, all intend to increase their output, and over a period can be expected to increase their distributions to shareholders. Indeed, it is in the mining field (and here "mining" is meant to convey definite proved 'mines), where the greatest opportunities seem to lie. All the three companies mentioned, over a period should increase in value. Mount Lyell is making profits of over 10 per cent, per annum, and taking the London opinion on the future price of the metal, prospects appear to be exceedingly bright.

It is expected that Sulphide Corporation will be paying at least part of its preference capital after the next annual general meeting and that profits will show a substantial increase over those disclosed last year.

The other Barrier stocks continue to improve slowly, but it would appear that the greater part of future prospects have been discounted. Lead is liable to some reduction in value and it would not be surprising if the U.S.A. abandoned its silver policy and allowed silver to look after itself, notwithstanding the large purchases already made in consequence of the American legislation. The N.R.A. Code has been practically abandoned and if the silver policy were abandoned, the profits of the Barrier stocks would show a substantial reduction. In. any1 case, values at the present time are substantially above 1929 levels, when profits were considerably in excess of those at present disclosed and distributions correspondingly larger.

There has been a gradual improyei ment in the general banking position , and it now appears that shareholders lin the various Australian banks can j look forward to a period of increasing proftts and this, with the mining group, appears to afford the greatest opportunities for investment. Advances are now substantially above those of previous years, general trade and exchange business have shown decided improvement, rates on deposits have been brought into line with those on advances and interest rates have swung up from the depressed levels of 1933 and 1934, and at the present time all indications point to improving profits. POSITION OF BANK SHARES. Past experience has proved the difficulty of acquiring bank shares in any market except a neglected one and the present appears opportune to buy bank shares with a view to permanent holding and for a rise which much undoubtedly come. Apart from certain selected mining stocks of proved investment value, certain of the metal stocks, and the banking group, most of the individual issues in the market have discounted any improvement in dividend rates and such benefits as can be expected are likely to come more from external sources rather than from an increase in the dividend rate, which, as already indicated, has in most cases been discounted, allowing for the present trend of interest rates.

The brewery, group has already shown substantial recovery and over the past few months two of the leading stocks have made a bonus issue of capital for shareholders on very favourable terms. Rumours are current that Australian Glass is likely to do the same, but when so much depends upon the directors' policy it is very difficult to make any accurate forecast when such benefits can reasonably be expected. However, the three groups already indicated, together with the tin group, which is returning to favour, present very favourable opportunities for future capital appreciation. World consumption of tin is expanding; stocks are at a very low level, and although there have been several fluctuations lately owing to the shortage of spot metal, indications point to a comparative stability in the market position. The success of the scheme in the gradual increase of quotas the comparative stability in price, and improving balance-sheets and reports, are gradually directing attention to the leading tin producers, and this, with the other three groups, would appear to ofTer the greatest possibilities of anI prcciation,