THE SHARE MARKET

Taranaki Daily News, 20 December 1929, Page 7

THE SHARE MARKET

DROP IN BANK SHARES BOOSTED TOO HIGH. FURTHER FALL LIKELY. (From Our Own Correspondent.) Wellington, Dec. 17 According to a report in the Argus (Melbourne) Australian stock exchanges have been experiencing a period of weak prices after it was thought that prices had been marked down to conform to the prevailing adverse economic conditions, and although a few general investments have been able to withstand selling pressure the section on the whole has suffered a severe set-back. The paper says: ‘’Although there may be justification for a fall in price below the level touched a month ago, the feeling among genuine investors is that the depreciation in values in the last few days has been out of proportion to the probable reaction in the earning power of the industries concerned.” It seems that on the Australian exchanges brokers are dealing in shares on their own account, and in the capacity of “bears’ and speculators. The Argus, in a recent issue, says: “In recent months the exchanges have experienced one of the most depressing periods in their history, all the more marked because the general fall in prices followed a strong upward movement, inspired by the faith of investors in the ability of leading industries to obtain a strong position. Much of the business at falling prices, however, has been done not on behalf of the public, but by brokers in the capacity of professional speculators. The exchanges exercise strict control over the business conduct of their members -whose integrity is not questioned, but the constitution of the exchanges Wants revision to prevent. professional speculators from wielding so much power ill the making of markets for stocks and shares. It is said that speculators are an asset to a market. In sonic measure that may bo true, but the speculating should be done by those who. employ the brokers and not by the brokers themselves. Prices had to come down, but they should have been allowed to decline under the influence of orders placed by the investing public, not under the added pressure of the operations of ‘bears’.” The New- Zealand stock exchanges are depressed) and it is doubtful whether the -limit of .the decline has been reached. Investors in the Dominion have “gone blind” on bank shares, for they Were regarded as a sound and sale investment, but when values are pushed up to a •giddy height there must be a decline, and that is what has happened. At the prices ruling in September the return to investors on money invested in bank shares was in few cases higher'' than 5% per cent., and in a good many cases it was below 5 per cent. These rates were scarcely good enough when compared with rates obtainable on equally sound and safe investments. Investors, by competing against one another, and accepting the advice of others, principally brokers, paid prices higher than were warranted by the intrinsic merits of the securities. In point of fact, bank shares were overloaded, and sharebrokers must be saddled with some of the blame, for they c-ould and should have warned clients against placing values on shares to yield such low returns as quoted above, unless, of course, there wire special circumstances, as, say, the issue of. new shares at a premium below the market assessment. This was not done, and many Investors bought up bank shares at high prices ruling so recently as September last. i't is instructive to give a few illustrations of what the loss has meant to investors. In September the prices of Bank of Australasia shares was £l4 12s Cd, while a few days ago they were at £l2 17s, a decline of 355. The market price of Union Bank in September was £l4 13s; they have since sold at £l3 13s. The shares of the Commercial Bank of Australia are 10s paid up, and in September were selling at 28s 3d, and now they are worth only 25s 9d, notwithstanding that a fresh issue of shares is to be made in January at £1 each, including premium. Australian Bank of Commerce have dropped rrom 33s M to 295, the shares of this bank being- £1 paid up. At 33s 9d the return to the investor was only £4 14s 9d per cent., which obviously was absurd. This bank has just suffered a loss of £5OOO through a clever swindle. English, .Scottish and Australian bank shares are £3 paid up, and sold in September at £8 ss, and now they are only worth £7 Ils, if that. National Bank of Australasia, £lO paid up, have dropped from £l9 10s to £l6 7s Gd, and the £5 paid up from £9 10s to £S.

The losses suffered by those who bought bank shares in September are substantial, and the important question for investors is whether bedrock has been reached. The Australian conditions are bad, being considerably worse than in New Zealand, and presently there will be a considerable pressure to sell, with a conspicuous absence of buyers, and under such circumstances even the present reduced values will not be maintained.