INVESTMENTS

Grey River Argus, 12 August 1946, Page 7

INVESTMENTS

POSITION IN BRITAIN LONDON, August 1. After the steep advance in prices which followed last April s Budget, the London Stock Exchange has relapsed into a state of dullness. Many people regard it as a temporary phase, states Mr. Norman Crump. It is possible to find several explanations for it. The real test will be whether or not autumn witnesses a revival. I s\y this because one cause of the present dullness is the advent of the summer holiday season. Many people, both stockbrokers and investors, are now taking their holidays, and a number of-them cannot “be bothered to watch the market.” Allied with this is the fact that people who can show good profits as a result of purchases earlier in the year are tempted to sell out and take their profit so as to pay for their holidays.

Auotl er cause of the dullness lies In the fact that new capital issues are beginning to make their weight felt. According to the Midland Bank’s calculations, they have risen from a mere £4,500,000 for the three months to September 30, 1945 to £29,000,000 for the three months to June 30, 1946. This last figure is not far short of the pre-war figure of £32,000,000 for lhe three months to June 30, 1939; but it must be remembered that 1939, even before the outbreak of war, was a relatively poor year for new capita! issues.

Be that as it may, £29,000,000 of new securities cannot be taken up in so short a period as three months without making their mark. Some investors have been selling shares already in their possession in order to re-invest their money in one or more of these new issues. Without probing this switching purpose any deeper, it can be said that the market has had to digest these new securities, in addition to the unknown proportion it receives in the summer issue of 2A per cent, savings bond.

This is a rough description of the technical position, and it is clear that it relates to matters which may easily right themselves by autumn. But there are one or two uncertainties of a more lasting character. First, there is the future action and attitude of Britain’s Government. Many investors to-day are fighting a bit shy of securities in companies likely to be nationalised. They do not know exactly when nationalisation is coming, or what the compensation terms will be. They do not aven know if they will be compensated in cash or in Government stock; and if the latter, whether they will he free to sell their stock. This means that they do not know whether a purchase at current market prices will give them a profit or inflict upon them a loss.

Another cause of doubt is the Government’s attitude towards dividends. Mr Dalton for one has repeatedly stated that any increase in dividends would be frowned upon. Admittedly there is a general case to-day for ploughing back earnings so as to finance rehabilitation and development work; and most company executives see this as clearly as Mr Dalton. This, however, is not quite the same thing as saying that in no circumstances ought dividends to be increased. The upshot is that potential investors are beginning to wonder lest any general increase in dividends will lead to some new kind of taxation upon company profits. Alternatively, the majority of companies are now beginning to receive their excess profits tax rebates. The investor is wondering how the Inland Revenue authorities will interpret the law which enacts that no part of this rebate shall be distributed to shareholders. The course of events overseas is also arousing doubts. There is no need to catalogue recent events, still less to pass judgment upon them. It is sufficient to say that they are from time to time causing doubts in the minds of investors. Perhaps the most persistent question mark of all is the future course of American business and Wall Street prices. Despite the restrictions upon dealings between London and New York, any setback on Wall Street would have an immediate psychological influence in London. These are the doubtful features of the position. Against them there are two fundamental forces. The first is cheap money, and here I am convinced that the Government will continue to hold down interest rates at all costs. The second is the growingweight of money. Bank deposits continue to expand, and as long as this Upward trend continues there will be new money seeking employment. This will be an offset to the present stream of new capital issues. For these reasons I look for a firmer tendency next autumn, but I do not knpw how long it will persist into next year.