MONEY AND BUSINESS AFFAIRS

Manawatu Standard, Volume LVII, Issue 9, 9 December 1936, Page 2

MONEY AND BUSINESS AFFAIRS

TRIALS OF INVESTORS. (By H.J.K.) Investors in Stock Exchange securities have received several shocks during the year, Germany having provided several of these blows. First there was the disclosure that the German military forces had been brought up to pre-war strength; then came the march into the Rhineland, and finally conscription. France caused trouble in respect of the franc, and the flight of gold from Paris; Italy followed with her Ethiopian adventure, and the civil war in Spain, which is still raging, may yet cause serious trouble. The final shock has been the constitutional crisis in England, which may still have farreaching effects. That the capital market has been able to survive these shocks is somewhat remarkable. Two things have helped, the armament race and the monetary agreement between England, France and the United States. The latter has helped to keep the foreign exchanges steady and to that extent has helped international trade. INTERNAL BORROWING. The expenditure on armaments is being financed in all countries, except in Britain, by borrowing; even the United States is doing so. This borrowing has to be done internally, that is, each country has to borrow from its own nationals at low rates of interest, and in some cases, as in Italy, for example, the people are forced to lend to the Government. The London capital market is practically closed to foreign borrowing; even the Dominions must obtain the authority of the British Treasury, through the Bank of England, to issue a loan for fresh capital in London, except conversion loans. The point is this: The countries that are borrowing from their own nationals are piling up debt beyond their economic conditions, and it is quite evident that presently it will be found that these countries will bo unable to meet the service debt, and will be forced to reduce Interest, and reduce the amount of the outstanding loans l>v a big percentage. This is one of the probabilities of the near future. The old conception that a State obligation is sacrosanct has gone by the board. States are now quite indifferent as to whether they honour their obligations or repudiate them. GILT—EDGED SECURITIES. For a long time the belief was held that Government bonds were absolutely safe both in respect of' interest and safety of capital. That belief is still current among some people, hut the investors who study market trends and investment psychology aro changing their views. The investment trend now is in the direction of ordinary and preference shares of industrial companies; and here again they are subject to classification based on various considerations. The piling up of debts is making investors rather careful. INVESTMENT OF CAPITAL.

Taking the various matters into consideration it cannot be said that a man dealing in stocks and shares, or for that matter in other classes of security, is an investor. In pre-war days a man could invest his capital to bring him in a steady fixed income, or at least an income showing very little variation from year to year. That is not the case to-day, for one cannot be sure of obtaining a sure income, or that his capital will he safe. It is a perfect gamble. To make matters worse, there is a growing belief that a slump will follow upon the heels of rearmament. The nations cannot afford the huge sums that they are borrowing for armaments. To protect themselves from foreign imports, and the necessity for finding foreign credits to pay for these, self-sufficiency will be tightened up, and the conditions of a serious slump will revive. The position of the socalicd investor would be as unsafe as ever. BRITISH SECURITIES.

The safest gilt-edgeds are British securities. Britain is paying for rearmament out of taxation. The financial year will probably end up with a deficit, and that will lead to increased taxation. But one can make certain of receiving interest on due date and the capital on maturity of the bond. And shares in British companies are sound and good. It is for these reasons that foreign capital is going to London for investment. Latterly foreign capital has been going to the United States, which may eventually cause trouble to the American Treasury, if, for example, there is a heavy withdrawal of funds. The investment trend to-day is a drift from Government securities to industrial shares.