THE INSIGHT OF CAPITAL

Taranaki Daily News, 17 March 1931, Page 11

THE INSIGHT OF CAPITAL

ACUTE SENSITIVENESS

EFFECT OF RECENT MOVEMENTS.

LONG-TERM VIEW OF PROSPECTS.

(From Our Ow Correspondent). Wellington, 1 March 14. Capital is very sensitive; it is promptly affected by depressing factors and as quickly responds to favourable conditions. A't base capital is more optimistic than pessimistic, and this must be so, for capital is at all times seeking an outlet. It is cosmopolitan. It recognises no nationality, no frontier, no creed and no borders. Give capital the least encouragement and it flows in that, direction. Capital, it may be said, gives expression to its sentiments mainly through the Stock Exchanges, and therefore the London and New York Stock Exchanges, but particularly the former, may be taken as the barometers of capital.

It is idle to say that capital is not influenced by political events;. indeed, politics are now so closely interwoven with economics that it would be a great blunder not to give due weight to political. events. Last week the London Stock Exchange showed some buoyancy which was due to a number of incidents. There is no doubt that the FrancoItalian naval agreement released a certain strain; at all events it reduces expenditure on naval armaments, and means a saving to the Treasuries of the nations concerned. But above and beyond this has been the settlement of the Indian trouble and the lifting of the boycott of British goods. This latter will have a direct and immediate beneficial effect on British trade, and though we have had nothing to do with the Indian problem, we shall benefit indirectly ,by the settlement. The cotton industry of Lancashire has been under a cloud for a good many months; the industrialists of that centre have rationalised, reduced wages, improved machinery, and some have bankrupted, and now there is a prospect of industrial activity. The mill hands of Lancashire are consumers of butter and cheese and meat and they need swollen clothing. With steady work and regular wages they will help to consume more of the products, some of which no doubt will be of New Zealand origin. These favourable instances are political in their nature, but there is a favourable economic factor, for it is now stated that for the first time since July, 1929, the Economists’ index number of commodity prices at the end of February shows an upward movement, an’ the Economist remarks: “Though the percentage of increase is only onethird of 1 per cent., it is at least satisfactory that the prolonged downward sweep appears to be momentarily arrested.” The rise in commodity prices is very minute, but it is a rise, and capital has not hesitated to seize Upon it as a good omen of the immediate future. Commodity prices have been bumping at the bottom for months, and now seem to be moving upwards. Of course, not all commodities are so affected, but a good.many are, among them being wool, the prices for which at the London sales must have caused a wave of optimism to surge over sheepowners. Capital through the Stock Exchange has shown appreciation of these favourable movements and prices of stocks and shares have ascended. New York has had its spectacular flutter, but has since settled down to normal business.

The Stock Exchanges of Australia and New Zealand have responded to a minor degree. It is impossible to give any details of movements on Australian exchanges, but in New Zealand there have been sharp advances in three banks’ shares. The shares of the Bank. of New South Wales have risen from £26 2s 6d to £27 in the course of a few days, and yet a fortnight ago the highest bid was £25 with the quarterly dividend thrown in. The heavy drop was due to the directors standing to their legal right to pay dividends in Australian currency. The Union Bank of Australia sold as low as £6 12s 6d, and at tir»j of writing buyers are ofl’eririg £7 18s and have not the slightest hope of filling their requirements. The Bank of Australasia shares have risen from £§ 15s to £9 7s 6d and are unprocurable at the latter figure, which means that the bidding must go higher. It is hard to discern the reason for this sudflen upward trend, for the economic conditions of Australia are still in a haze, while the New Zealand conditions will need a lot of hard work and determination to move. Capital apparently sees through the haze; at all events it is apparent that capital is taking a long-term view.