Investment Notes
By CUSTOS
How 'political' equity share markets have become was demonstrated one day last week when the sad news of the Speaker's death was
flashed on the ticker tape. Buyers immediately appeared and prices were marked up on the ex-
pectation that the days of this Government were numbered. Oils and property shares were speci- ally favoured and buyers came for overseas companies on the thought that a Conservative government would be bound to redress the present unfair taxation of overseas companies such as RIO TINTO ZINC, CHARTER CONSOLIDATED and the tin and tea companies. This optimism, however, was short-lived. The outbreak of the India-Pakistani war caused buying to dry up and prices were marked down on a very small volume of selling. The ICI issue was seventeen times oversubscribed.
Steel Shares
The greatest conundrum on the Stock Ex- change is the steel share market. The 'nationali- sation' shares are standing at wide discounts on their nationalisation price ranging up to nearly 40 per cent in the case of STEEL or WALES. If the steel nationalisation plan is to be dropped, as it may well be if the Government is to survive with the support of the Liberals, many of these shares will fall, for no industry is so vulnerable to an enforced recession as the steel industry. The only share which is selling near its nationalisation price is STEWARTS AND LLOYDS, namely 31s. 6d. compared with the compensation price of 32s. 5d. I have just been reading a broker's recommenda- tion to sell. Profits, they say, will be lower in the current year and the interim report published in June showed that the directors were doubtful whether the 171 per cent dividend would be maintained. With profits in the second half of the year even smaller than in the first half it is estimated that equity earnings, subject to a cor poration tax of 40 per cent, will be not much over 171 per cent. This implies that the present dividend yield of 11 per cent would become the earnings yield, which is certainly not high enough for a company in a cyclical industry, The 1966 prospect for the steel industry is prettY gloomy. The companies serving the consume' durable industries (i.e. the sheet producers like STEEL OF WALES) Would suffer most, but even manufacturers of steel tubes (like STEWARTs AN LLOYDS), which are used in virtually every in. dustry, would be badly affected. In the previous recessions of 1957 and 1961 the profits of Stewarts and Lloyds fell by-40 per cent.
Gold Shares
I have never been one to push gold share for I have never been able to believe that the writing-up of the price of gold was a reasonable bet. The coming meeting of the IMF in Wash' ington will undoubtedly confirm that the powers are not in favour of a revaluation of the price of gold. It was only the ' French expert, the elderly M. Rueff, who advocated the doubling or trebling of the price of gold, and the French Finance Minister, M. Giscard d'Estaing, ho' now disowned him. Gold shares have been fall' ing away in the market for some time ratr STATE ocouLD from 153s. 9d. to 145s.-- and ar' not yet on a buying basis. Certainly the gold' mining industry is not going to disintegrate. hill the trouble is that the market is a one-waY market. Everybody either wank w buy or to sell.
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