Finance—Public and Private

The Investment Outlook

AFTER a prolonged period of Stock Exchange activity, accompanied by rising prices, it will have been noticed that during the last week or so there has been a decided pause in the activity and a retrograde tendency in some of the securities where sensational gains have been recorded. How extensive have been the gains in some securities during the past eighteen months may be gathered from the following table of a few representative stocks. It gives the advances which have occurred in a few examples—taken almost at random—during the same period

Lowest Highest Present Rise from Security.

1927. 1928. Price. Lowest.

21% Consols .. 534 561 564 +3 31% Conyers. .. 74* 78* 774 +3* 4% Fraiding.. .. 851 931 901 +41 5% War Loan .. 100* 1031 1001 +-* Gt. Western Ords. .. 83 1031 97 +14 R.M.S.P. .. .. 64 85 851 +211 Leopoldina Ry. .. 461 70 691 +222 Cordoba Cent. .. 284 401 341 +51 Brazil Traction .. 1061 264 2634 +1571 Anglo-S.A. Bank .. 6/

8R

81 +21 Peru Corp. .

44 20/ 191 +141 Coats .. .

211

78/0 73/6 +19/11 Columbia Graph. .. 21 161 141 +111 Mex. Eagle .. .. 14/44 36/9 33/6 +19/14 Brit. Ara. Tobacco .. 411 117/3 117/6 +21/10/ Allsopps .. ..

1

35/6 32/0 +14/6 Guinness .. .. 420 52/3 475 +55 V.O.C. Holding • • 211 4* 41 +211 Crittall .

21 60/71 54/6 +4/6

Without suggesting that the very trifling set-back which has occurred during the past ten days necessarily offers an opportunity for the investor to acquire stocks at the slightly lower level established, it may be well, perhaps, to point out some of the causes responsible for the quieter tone of markets and the reaction m values.

A TEMPORARY INFLUENCE.

In the first place, there is what may be described as the rather temporary though very real influence comprised in the fact that the Stock Exchange has commenced an account of three weeks' duration which covers the Whitsuntide holiday, and that we are also approaching the end of the half-year. Stock Exchange operators have almost a superstitious horror of long accounts, which happen so often to have been characterized by a reaction in prices, and the dislike is increased when the period covers a holiday season such as Whitsun. That circumstance alone, therefore, has played its part in the dullness of the past week. Again, with the approach of June 30th there is a tendency to effect realizations ahead of the preparation of half-yearly balance sheets, and that tendency is proportionately pronounced when the preceding months have been characterized by a general advance in values. It is true that as against these influences the investment markets are usually affected favourably by the fact of £50,000,000 being released on June 1st in dividends on the 5 per cent. War Loan, but, as a matter of fact, that influence is observable as usual at the present time. for in contrast to the reaction in some directions, British Funds and kindred stocks have kept wonderfully firm.

SITUATION IN AMERICA.

As a matter of fact, we have to look further afield for the pause in speculative activity in certain sections of the Stock Markets, and undoubtedly one of the chief explanations is to be found in the uncertainty, not to say anxiety, which is felt with regard to the financial outlook in the United States. In that country speculation, like most other things, has been on the grand scale, and,' without desiring to weary the reader with statistics which, because of unfamiliarity with- surrounding conditions, may not entirely carry conviction, it is impossible not to be impressed with the general character of what may be termed the statistics of the recent Stock Exchange specu- lation in ,New York. Those transactions in so far as they are speculative in character are, of course, financed on loans as in this country, and the total of brokers' loans in New York, which towards the end of 1926 amounted 46 2,640 million dollars, has risen quite recently to over 4,000 million dollars. Expressed in the briefest terms, the United States appears to have been passing through a period of what can best be described as inflation in Stock Exchange prices. Commodity prices have been compara- tively stable, but the Stock Exchange appears to have felt the full force of the great mass of credits available, with the most extraordinary results on prices of securities. Moreover, in addition to the colossal speculation in securities on the spot, the United States over a series of years has been making enormous loans to foreign coun- tries, and, in addition, has been purchasing securities largely abroad, while during recent months exports of gold have been considerable.

RISE IN NEW YORK BANK RATE.

It is not surprising, therefore, in view of these condi- tions, that the Federal Reserve Bank in New York should have recently raised its rate of discount from 4 to 41• per cent., and the significance of that movement from the standpoint of our market lies in the fact that for the first time since our return to the Gold Standard the official rate of interest in New York is on a parity with that of London, so that we shall now have a more severe test of our ability to retain our gold with money rates at New York at as high a level as our own.

MONETARY UNCERTAINTIES.

The point, therefore, which is exercising the market here at the present time is the possibility of still higher money rates being imposed in New York to check the speculative movement in stocks, in which case it is impossible to tell how far there may be repercussions in the market here. If, for example, speculative activity in Wall Street were pulled up too severely, there might be realizations by Wall Street speculators not only of stocks held on the spot but of those purchased on this side, while there might also be a check to American lending abroad with a probable effect upon the exchange on London.

THE FRENCH SITUATION.

Moreover, to the uncertainties with regard to the situation in the United States has to be added the feeling of almost equal uncertainty as to how far financial developments in France may have an effect upon other centres. The recent French Loan placed internally his met with considerable success, and the proceeds will be used to consolidate, in part, short-term maturing obliga- tions of the French Government. There is the possibility, however, of stabilization of the French currency to be borne in mind, and at present there is still great uncer- tainty as to whether M. Poincare will stabilize the franc at round about its present level or will aim to take a level of something nearer 100 francs to the £. Under any cir- cumstances, so important a matter as the future level of French currency would be a matter of profound interest to other gold standard countries, but when, as is actually the case, France happens to have unprecedentedly large credit balances both in London and New York, it is scarcely surprising that those centres should feel that there are elements of uncertainty in the outlook which cannot be ignored.

INVESTMENT OPPORTUNITIES.

It would not be surprising, therefore, if hesitancy were to characterize the markets for some little time ; but, on the other hand, I am inclined to think that, so far as gilt- edged securities themselves are concerned, any set-back should be moderate in character and should be regarded as affording useful opportunities for the genuine investor,. ARTHUR W. KIDDY.