IMMEDIATE REACTION

Otago Daily Times, Issue 27254, 3 December 1949, Page 3

IMMEDIATE REACTION

INVESTMENT MARKET

Prices Respond To Change Of

Government

CONFIDENT UPWARD TREND

By Gregory The phenomenon of the echo preceding the voice was witnessed on the Stock Exchange last month and when the decision of the people was heard on Wednesday evening it merely served to confirm, even as an echo does, the verdict of a “shadow” poll conducted on the free market of the Stock Exchange in the preceding three weeks. The confident trend of prices during November had foretold the fate of the Government, but'on Thursday morning the market gave expression to its jubilation with a further, general lift in quotations and with two stocks, South British and New Zealand Insurance permitted itself an exuberance which only time would justify. Whereas we recently predicted a busy, closing month for the Stock Exchange it now seemed likely that trading would be hampered not for lack of buying impetus, but because vendors, wide-awake to their newly-gained advantage would become aloof, nominal and scarce. They struck an attitude on Thursday which clearly indicated that they were prepared to wait for buyers to revise their idea of the values of units of ownership in free enterprises released from the constant restriction and threat of Socialism.

A financial commentator might be excused for entertaining a tinge of regret that his shafts were blunted, his chief adversary arid target vanished from the scene. There would stiljl be work to do, there might even be a crusade to conduct, but the future could not be expected to offer the glory of past battles with a redoubtable opponent, the Minister of Finance, now deposed. Investors were quick to sift through the Stock Exchange list in quest of the shares most likely to appreciate the change of Government and apart from an initial scramble for South British and New Zealand Insurance which carried them up by an overgenerous 10s or more per share concentrated their attention on brewery, meat, and forestry issues.

As a matter of interest and comparison we have prepared a table of carefulyselected stocks showing their prices immediately before the Socialist Government was elected and their prices on the day of its defeat. It is reiterated that the stocks are selected and do not represent a true picture of the general effect of the coming and going of a Government. but investors may nevertheless find much to interest them in the comparison.

Offers for New Zealand Breweries were raised to 46s yesterday and sellers quoted 475. but they are still well below their 1935 value, which was based on a 7 per cent, dividend in contrast with the current 8£ per cent., but if they have conspicuous interest for the investor there are other items to provoke study and analysis in the table. .■ The task of attempting to review the entire repercussions of the Government’s defeat is an' exceedingly doughty one and we will confine our further remarks to a few random observations.. The lot of forestry companies has been a sad and depressing one under Socialism, the more so as the Socialist Government was ambitious of making a success of its own State forestry scheme and was determined not to suffer by comparison with the success of private enterprise in the same field. Mr Nash's method of taxing forestry companies made no allowance for the systematic destruction of the assets of the company* (the standing timber) from which is secured its revenue, and there is every prospect that the new Government will concede the unfairness of this method as applied to forestry companies and offer encouragement in the future with a method of taxation more suitable to-the industry.

We drew attention to South British Insurance shares in these notes on October 24, and as the day of the election approached the shares hardened from 87s 6d

to 91s 6d, but on the morning after the elections buyers disdained limits and lifted their offers to 99s (in the north), confident of their expectations of a capital distribution, which, as we remarked in October, has been accumulating since 1927 when reserves were last raided!

In its 1946 election policy the National Party undertook to return some portion of the Bank of New Zealand ownership to private investors, but the plank was omitted in the recent campaign and speculation whether or not the 1946 policy will be implemented would seem idle, but for what it is worth this column is confident that the semi-State semi-private ownership which existey prior to the State " steal ” in 1945 will be reverted to. The extent to which the Dominion election results will influence the Australian Federal elections next Saturday is of great significance to investors and sound Australian stocks should perhaps be included in any Investment plan formulated during the coming few days. Any change of Government across the Tasman would Immediately focus attention on the exchange rate, and whilst an immediate purchase constitutes a gamble on the election results the risk is minimised by the selection of sound stocks for the purpose.

The chairman of the National Insurance Company will have the distinction and responsibility at the annual get-together on Monday of initiating the tone of future annual reports, recasting his remarks to the political somersault and on behalf of the whole insurance group extending a preliminary welcome to the expected return of the workers’ compensation insurance. His report of the year’s operations will reveal income £24,770 higher at £543,660, but the ratio of losses moved from 52.3 in the preceding year to 54.4 in the term he will review. The carelessness or culpability of people does not change even if their politics do and our curious glance back to our earliest record of this company, the accounts of 1903, was rewarded by the disclosure that 46 years ago the ratio of losses to premium income was precisely the

same at 54.4. Although management expenses were higher their ratio to income was actually 0.2 lower than last year, and it is reasonable to assume that they have seen their peak. Reserve for unexpired risks, which came in at £280.500, goes out £17,500 higher at £288,000, and on the new business written represents a substantial 70 per cent, reserve for losses against the 40 per cent, established by insurance practice. The shares, freed from the threat of Socialism, will shortly resume their role as a sure, safe, and conservative investment, and competitive inquiry may be expected to raise their current value which yields a buyer an undoubted tax free £3 4s per cent. Petrous Tile, which doubled its capital in 1948, redoubling with the issue of 20,000 shares (of the 30,000 authorised at the combined annual and extraordinary meeting on Tuesday last), to be issued to present shareholders at par in the proportion ■of one for each one held. No opportunity was given the market to quote the shares on a “ cum rights ’’ basis, and from being “ cum nothing,” or at the most, “ expectations, ” on Tuesday morning, the shares had to be quoted “ex rights ” on Wednesday. The shares were also ex dividend (Is 6d) on that day, and subsequent quotations have been very wide, with the closest approach of a buyer yesterday at 245, whilst the seller asked 30s. The " rights ” were similarly wide at 2s 3d buyer and 5s seller. Other investment news of the week was private cabled advice that the 250,000 shares (out of £6,000,000 odd) offered by Courtaulds for public subscription drew a total application of 1,948,000 shares, or an over-subscription of almost eight times the number offering. Mount Morgan shares continued to firm and reached 17s 3d yesterday afternoon. National Electric announced an annual dividend of 10 per cent., and added a gratifying bonus of 5 per ceiit.

1935. Div: 1949. Div. Price. p.c. Price. p.C. Natl. Bk. NZ .. 72/4 57/3 5 South. Meat .. 78/6 16 59/10 NZ Brew. 52/3 7 44/81 Milburn Lime 44/3 82 33/9 5 5-6 O.D. Times .. 51/82 47/6 82 Wilsons Cement 42/132 17/3 5