FINANCE-PUBLIC AND PRIVATE

THE TENDENCY IN SECURITIES

BY ARTHUR W. KIDDY.

Wrrri the coal crisis at a stage which renders possible either an early settlement or a still further serious pro- longation of the -deadlock, the difficulty of forecasting the general course of Stock Exchange price movements is necessarily increased. At the same time, experience tends to prove that while stirring- events, such as political and industrial crises, undoubtedly affect for a time the course -of Stock Exchange movements, they do not usually affect to the extent which, perhaps, might be expected, the general trend of movements over a pro- longed period. Those movements are more usually in- fluenced by such questions as the. supply and value of loanable capital, the movements in commodity prices, and, indeed, the cost of living generally.

• THE POST-WAR RALLY.

During the days immediately following the close of the War, when all quotations were at abysmal depths, and when even British Government stocks could be purchased to yield 6 per cent., it was not very, difficult to foresee that with the first signs of a cessation of Government borrowing and of economy in the National Expenditure a general rise in prices must follow, and that the advance was most likely to begin in British Government securities themselves, both because of the direct influences operating and because of the tendency for confidence first to be re- established in the premier securities.

Accordingly, from about 1919 onwards there was a very general appreciation in British Funds and kindred securities, and that movement indeed may be said to have reached its climax somewhere about the early part of 1923, wlien-possibly because of the retention of a high Income Tax and because of the desire for higher incomes to meet enlarged expenditure-a change in the tendency of inVestlitents began to take- place., At that tune the selling of investment stocks by the banks had scarcely begun in earnest, but it was destined to begm soon, and has since gone into very large figures indeed, so that, on the whole, the absorbing power of the investor has still remained a very remarkable feature of the situation.

A CHANGE IN TENDENCY.

For a long time past, however, when dealing in these columns with the Stock Exchange outlook, I have ha,d to emphasize the tendency for gilt-edged and fixed interest stocks generally, either to remain steady or to. sag Slightly, while what is known as the "variable dividend group" and the .semi-speculatiVe and even out-and-out speculative 'securities :have tended to advance. I do not know that a- better demonstration of ihe 'net result of this change in investment tendencies can be affordedthan in the following comparison which I have made between ,the elirrent table of Stock Exehange seeurities as valued 937 the Bankers' Magazine, and one which appeared in

April, 1928, when many investir eat securities were at their highest point. From that table it will be seen that in the case of 87 Fixed Interest Stocks there has been" a decline in capital value of about £288,000,000, while on the other hand the group of 278 Variable Dividend securities, with a very much smaller nominal capital value, has appreciated during the same period by about £218,000,000. Following are the details of the movement in the various groups :-

VALUES OF SECURITIES AND THEIR AGGREGATE VARIATION BETWEEN APRIL, -1923, AND SEPTEMBER, 1926.

(000's emitted.)

Department Containing, Market Values. Rise or

Apl., 1923 Sep., 1926 Fall.

3,566,600 58,950 83,550 22,300 21,050 598,230 254,655 310,765 132,000 10 British and Intlan Funds 9 Corporation (U.K.) Stocks 8 Colonial Government Stocks 8 Corporation Stocks (Colonial) 7 Corporation Stocks (Foreign) 26 Foreign Government Stocks 6 British Ely. Debenture Stocks 6 Ditto Preference Stocks 7 United States Bonds (Gold) .. 3,369,956 .. 44,260 70,489 19,964 13,433 .. 227,582 211,951 .. 276,303 .. 122,505 3,204,119 42,009 68,505

- 20,076 13,836 232,701 188,431 229,305 124,260

-165,837

- 2,251 - 1,984

-I- 112

+ 403 + 5,119 - 23,520 - 46,998 + 1,755

5,048,100 87 Fixed Interest Stocks .. 4,358,443 4,123,242 -233,201 315,325 13 British Rly. Ordinary Stocks 262,180 182,584

- 79,596

18,900 5 Indian Railway Stocks .. 19,633 22,714

+ 3,081

88,350 5 Colonial Railways .. 113,509 117,352

+ 3,843

474,000 11 United States Railway Shares 426,400 521,030

+ 94,630

141,200 20 Foreign Railways .. 95,538 103,241

+ 7,703

59,685 13 British Bank Shares .. 176,096 180,282 4- 10,180 43,000 18 Colonial and Foreign Bank

Shares 87,741 88,995

+ 1,254

18,121

10 Brewery Stocks .. . 40,580

73,204

+ 32,624

17,750

7 Canals and Docks .. ..„ 14,974

18,974

+ 0,000

146,916 38 Commercial and Industrial

Shares 382,703 473,304

+ 90,601

9,537 8 Electric Lighting and Power 11,988 16,233

+ 4,245

15,100 9 Fina.nelal Land and Invest-

ment Shares .. .. 21,537

24,284

+ 2,747

30,680

. 7 Gas Stocks .. : .

.. 30,232 26,752 3,480 9,343

17 Insurance Shares .. • • 109,243

140,380

+ 31,137

58,294 14 Iron, Coal and Steel Shares

• . 73,530

45,371

- 28,159

3,100

5 Nitrate Shares .. .. 4,769

2,054

- 2,715

42,649

10 Oil Shares .. .. .. 145,033

152,070

+ 7,037

5,402

9 Rubber Shares .. .. 8,936

15,256

+ 6,320

17,456

5 Shipping Shares .. .. 28,413

24,819

- 3,594

1,890

6 Tea Shares .. .. .. 4,658

8,984

+ 4,326

20,808 9 Telegraphs and Telephones

• • 36,854

34,206 -- 2,648 27,716 7 Tramways and Omnibus .. 34,780 286,46

+ 13,866

29,517

19 South African Mines .. .. 81,063

104,701

+ 23,638

28,735 6 Copper Mining Shares .. 44,602 41,968

- 2,634

11,859 7 Miscellaneous Mining Shares 7,712 7,776

+ 64

1,635,333 278 Variable Dividend Securities .. 2,242,704 2,461,180 +218,476 6,683,433 385 Grand Totals .. 6,599,147 8,584,422

- 14,725

THE PEAK OF INVESTMENT STOCKS.

And if the same tendencies in stock movements were expressed in index numbers the result would be just as

instructive. The list of securities selected by the Bankers' Magazine was revised at the end of 1921 when much of the rise in Government Stocks had already taken place. Early in 1922, however, fixed interest stocks had risen a further eight points over the end of 1921 level of 100, as compared with only three in the variable dividend group. Then for some months both groups steadily advanced, and in April, 1923, the rise in gilt-edged, or fixed interest, stocks, was about 16i per cent. and in the variable dividend group about 24i per cent. From that time, however, a sagging tendency began in the high-class investment stocks, although the more speculative descriptions while subject to many ups and downs, on balance forged ahead. And tow, at the end of September, we find the index number of the fixed interest stocks back to 110, whereas the variable dividend group stands at 186.4, or about 86k above the starting 'point at the end of 1921.

FALL IN RAILS.

This appreciation in the variable dividend group is the more striking because, in certain departments, there have been drastic losses, and notably British Railway Ordinary stocks have declined about £80,000,000 between the dates shown in the foregoing table, while there has also been a great fall in the shares of iron, coal and steel, and shipping companies. Nevertheless, all the time the investor has been on the look-out for cheap securities with an ever-increasing tendency, perhaps, to seek capital appreciation, which escapes the interference of the Income Tax collector, rather than to obtain slightly higher income with severe taxation.

THE OUTLOOK.

But, however interesting may be this examination of past fluctuations in price, the practical investor will probably want to know whether there are signs of the tendencies changing once again. It is, of course, Nominal Amount (Par Value) impossible to dogmatize on the matter,- and it is quite conceivable that should the prolongation of the coal crisis give a still further blow -to trade enterprise, a good deal of capital may be drifting into gilt-edged stocks for safety. Nevertheless, bearing in mind what has been said earlier in this article with regard to broad general tendencies, the market generally, I think, is of the opinion that we have not yet seen the end of the upward movement in the variable dividend list. Moreover, it must not be forgotten that just as some years ago the abnormally low level of British Government and kindred stocks attracted the attention of those seeking appreciation in capital values, so, if our industrial outlook should become brighter, there are groups in the foregoing table which obviously suggest a good many opportunities for the acquiring of cheap stocks. Both as regards fixed interest securities and variable dividend descriptions, there will doubtless be a good deal in the way of competition on the part of fresh capital creations to contend with, but at present it certainly looks as though it might be the gilt-edged group which would prove the more sensitive to such influences, largely, perhaps, because there has been a tendency to bring out new stocks at a price which has not fully appealed to investors, and a certain amount of financial congestion has resulted.