Investment Notes
y CUSTOS Tto, gilt-edged market had another mild shock and will be the more sensitive and certain to take fright at any further attack on sterling. The explanation of the last attack has for the time been a reassuring factor. An amendment of the European Monetary Agreement came into force on March 1 which involved the with- drawal of the gold dollar guarantee from the sterling holdings of the European central banks and monetary authorities (amounting to about £230 million), except for a small amount of £111 million. Some of these holdings were thereupon withdrawn, perhaps as much as £50 million. At the same time some speculative 'bear' selling took place, prompted by the foolish academic discussion in the press of the advantages for the UK of devaluation. British traders were also prompted to buy foreign currencies forward to meet their commitments later in the year. It was the old story and it could be repeated. When the amount of the gold losses are revealed on the publication of the March return of our gold and dollar holdings, the gilt-edged market may not be so complacent. The truth is that we are working on a very slender balance of payments surplus. The visible trade gap is no worse, but it is not encouraging to see that, seasonally ad- justed, exports, like imports, were 2 per cent. Tess in the three months ending February as com- pared with the three months ending November. A rise in exports, having regard to the less buoyant state of world trade, is becoming less and less probable, and if Mr. Maudling's promised expansion of the economy is to be realised this summer the import bill must rise. This is the prospect which keeps undated British government stocks on a yield basis of 6 per cent. In order to keep foreign money in London the Bank of England has used its new technique of charging the discount houses 3 per cent. above Bank rate for their loans. This will send the Treasury bill rate up to nearly 4 per cent. (against 3.4 per cent. last week). This caused a setback in the 'shorts' but should have no effect upon the 'longs.'
Cold Shares and Copper The devaluation talk temporarily brought re- newed life to the gold share market, but this died away this week on the recovery in ster- ling and — believe it or not — on the con-
demnation by Mr. Harold Wilson of armament exports to South Africa! As investment in South African gold shares is repellent to not a few investors, I suggest that Rhodesian copper shares should be considered as an alternative, for the sterling price of copper must rise on any de- valuation of the £. It is clear that a black African government will sooner or later be running Northern Rhodesia and there is no reason to fear that it will have any aggressive designs on the copper belt. It will obviously look to the two big copper mining groups for its revenues, and as these are managed by highly intelligent and liberal-minded chiefs— Mr. Harry Oppenheimer and Sir Ronald Praia --there is every prospect of a harmonious rela- tionship between black government and white copper companies. At current prices yields of 13.2 per cent. and 14.3 per cent. respectively can be obtained from NCHANGA and RHOKANA, while of the finance houses Mr. Oppenheimer's RHO- DESIAN ANGLO-AMERICAN returns 13.4 per cent. and Sir Ronald Praia's RHODESIAN SELECTION TRUST 12.1 per cent. The industrial demand for copper remains good and the constant threat of strike-interruption to the output of the South American mines tends to keep the price of cop- per firm. Of course, trouble in Rhodesia could come from white labour unrest in the mines, so investors must reeard a purchase of these shares as speculative.
Austins of East Ham
Following up my search for companies bene- fiting from the new housing drive I have found a small but promising joinery firm which makes wooden windows, doors, kitchen units and stairs. This is AUS1INS OF EAST HAM which also has a subsidiary making greenhouses and other timber buildings. Earnings have risen from 19 Per cent. in 1953 to 62 per cent. in the year to March, 1962. For the year just ending only a modest improvement in profits can be expected but 1964 profits should be materially higher. At 2Is. 3d. the shares yield nearly 41 per cent. on the 20 per cent. dividend (ignoring the 1 per cent. tax-free distribution) and nearly 15 per cent. on earnings.
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