FINANCE - PUBLIC AND PRIVATE

THE PAST HALF YEAR

BY ARTHUR W. KIDDY, AT the beginning of 1926, business men viewed the year with some apprehension. There were not wanting ludic*. tions of improverhent in the general financial and economic situation, trade showed some small signs of reviving an financial activities were considerable. Nevertheless, it was known that the coal output was only being made possible by State subsidies and that with the expiration of such subsidies on April 30th, a critical moment must arrive. Accordingly, a good deal of caution was displayed during the opening months of the year, and when the apprehended moment arrived it was found that the caution had been justified, for not only did the great coal stoppage begin, but it became coincident with general strike. It was soon found that under the leadership of extremists the miners were unlikely to co-operate in the matter of increasing output, and at the moment of writing the coal stoppage, which began at the end of April, is still in force. A two months' coal stoppage in Great Britain is something which can never occur without inflicting severe economic loss upon the country and therefore, in any backward glance over the past six months; it is impossible to describe the half-year as being other than an unfavourable one in everything pertaining to progress in real economic strength, or in wealth aceumu- lation. It is too early yet to determine the precise measure of the finanCial loss either to the Exchequer or to the nation at large, but that even on the most favourable assumption it will be a heavy one can scarcely be gainsaid.

SEMRITIES IMPROVE.

In spite of these unfavourable features (to which must be added the heavy decline in our Exports),- the fact remains that at present there has been scant reflection of them either in the National Revenue figures or in the movements in securities on the Stock Exchange, a con- spicuous feature being the strength of high-class investment securities. Some of your readers may remember that from the outset I suggested that while the coal stoppage must seriously affect our economic position, it was .conceivable that the industriardepression might occasion a concentra- tion of investment resources upon the security market instead of a large portion being diverted to industrial activities. Such, of course, has been the case and, aided, possibly, by foreign buying prompted by the flight from depreciating Continental currencies to sterling securities, investment markets show a fairly substantial improvement for the six months. This is well brought out in the follow- ing table taken from the Bankers'- Magazine, which contrasts the valuation of 365 representative stocks on the 18th of the present month with those of the middle of December in last year.

TABLE - SHOWING VALUES OF SECURITIES AND THEIR AGGREGATE VARIATION DURING 1000s omit

Depart ment, conic hung 10 British and Indian Funds ..

9 Corporation (U.K.) Stocks .. 8 Colonial Government Stocks 8 Corporation Stocks (Colonial) 7 Do. do. (Foreign) 26 Foreign Government. Stocks 6 British Railway Debenture • Stocks 6 Do. Preference Stocks 7 United States Bonds (Gold)

THE PAST MONTH.

ted.1

Market Values.

Dec. 17, Juno 18, Change 1925. 1926. on the Six months.

3,176,827 3,209,254 4- 32,427 42,287 42,386 99 69,267 68,257 - 1,010

19,918 20,096 -I- 178

13,130 13,588 4- 458

217,177 225,801 4 8,634 188,016 192,501 4,485 227,126 233,809 6,683 121,885 125,700 3,815

87 fixed Interest Stocks .. 4,075,633 4,131,392 + 55,769 13 British Railway Ordinary

Stocks ..

181,005 181,035 + 30

5 Indian Railway Stocks .. 20,967 22,655

+ 1,688

5 Colonial Railways .. 105,206 112,628

-F 7,422

11 United States Railway Shares 493,930 486,565 - 7,365 ?t.) Foreign Railways ..

97,804 97,140 - 664

13 British Bank Share::

185,619 188,709 + 3,090

18 Colonial and foreign Bank

Shares

85,191 88,728 -F 3,537

10 Brewery Stocks P4,004 82,462 - 1,542 7 Canals and Docks 22,140 18,733 3,407 38 Commercial and Industrial

Shares 469,538 483,600 -1- 14,062 8 Elect ric Lighting and Power 15,266 15,458 ± 192 9 Financial, Land- and Invest- • ment Shares .. 22,966 23,072

+ 106

7 Gas Stocks .. •..

27,137 26,909 228

17 Insurance Shares ..

135,509 138,454 + 2,945

14 Iron, Coal and Steel Shares ..

42,577 40,874 - 1,703

8 Nitrate Shares .

3,578 2,351 - 1,227

10 Oil Shares . .

147,886 150,175 + 2,289

9 Rubber Shares

16,714 14.886 - 1,828

5 Shipping Shares .. 22.932 23,067 + 135 6 Ten Shares .. 9;351 9,262 --- 89 9 Telegraphs and Telephones.. 34,722 34,655 -- 67 7 Tramways and Omnibus .. 21,058 24.764 -I- 3,706 19 South African Mines . . 93,422 94,88.5 ± 1,463

6 Copper Mining Shares .. 42,644 39,507 - 3,137

7 Miscellaneous Mining Shares

7,733 8,219 + 486 278 Variable Dividend Securities

2,388,899 2,408,793 + 19,894 365 Grand totals .. 6,464,532 6,540,185 4- 75,653

From the foregoing, it will be seen that in Fixed Interest Securities the rise in capital values for the six months is no less than .£56,000,000 .while variable dividend stocks have risen by nearly £20,000,000. For the appreciation in British and Indian Funds a big rise in the latter is partly responsible, while as regards Foreign Government Stocks, Brazilian and Japanese Funds have been leading favourites.

- RISE IN INDUSTRIALS.

In-: view of the industrial depression even British Railways Stocks- have been remarkably steady. dnring the six months. In the ease of the Prior Charge issues; it has no doubt been a case of a sympathetic rise with gilt-edged stocks generally, but it will be noted that even Ordinary Stocks have been maintained, though it must not be forgotten that until recently these securities have shown almost a record depreciation. It will also be noted that the rise in Variable Dividend Stocks would have been greater but for the decline in United States Railway Shares. Another interesting and, at first sight, surprising feature is the strength shown in the Commercial and Industrial group, but it must be recognised that the improvement is mainly traceable to particular groups such as Tobacco shares, shares of Artificial Silk companies, and the securities of some of the Newspaper groups. In the case of key industries like Iron, Coal and Steel there is a further decline to note, though on the other hand it is satisfactory to note the small improvement in Shipping shares. Of course, there are various directions in which movements during the half-year have been unfavourable, but on the whole the half-year has been a reasonably good one in the Stock Market and the volume of business has been by no means insignificant. - • INCREASED GOLD RESERVES.

This improvement in many groups has been achieved in spite of the fact that the period has . been moderately, active in the matter of new capital .creations. With . few exceptions these issues, although. they _ have aggregated about £110,000,000 for the half-year (as compared with about £100,000,000 for the first half of last year), have been thoroughly well absorbed. In view of the fact that so many of them have been either of a Foreign or a Colonial character, and in view of the further consideration of the general - trade depression. and decline in Exports, not the least striking feature of the six months has been the steadiness of the American exchange on London, while, during the six months, quite a fair amount of gold has been gained by the Bank of England.

LOOKING AHEAD.

It will be seen, therefore, that there has been a good deal in the way of financial developments during the first half of 1926 which must be regarded as encouraging in -character, and we probably owe that fact in 'part at least to the cautious attitude adopted at the beginning of the year. Our economic difficulties did not come as bolts from the blue but were foreseen Some time ahead. Indeed, it might be said that just as extreme caution occasioned stagnation of business and a setback in prices during the beginning of the half year, so, following upon the collapse of the great strike, there has been a disposition to take an optimistic view of the future and to believe that ultimately the industrial situation will improve as a result of lessons learned from the experience of the unpleasant fortnight at the beginning of May.

PROS AND CONS.

Whether this optimism will be justified in the near future remains to be seen. It May be well, however, to remember that just as the ill-effects of the coal crisis were lessened by reason of their having been anticipated, . so, if hopes with regard to an early termination of our industrial troubles should not be - fulfilled, a reaction in securities is not at all improbable. Nor must the fact of the recent large issues of capital be left out of consideration, for already there are not wanting signs of a little financial congestion. Moreover, even if the coal output is resumed shortly the effect. of the prolonged stoppage may be felt for some time, and we are now approaching the period of the year when the American exchange is usually more sensitive to adverse trade balances than it is during the first six months of the year. It is possible, of course, -that an early settlement of the coal crisis might mean an early reduction in the Bank Rate, especially if, in the meantime, there should be' a 'further decline in the official Discount Rate in New York. These, however, are all favourable possibilities which have been kept in view during recent weeks, just as, six Months ago, markets were alive to the dangers of the coal situation. I am inclined to think, therefore, that if favourable expectations should be justified in the matter of coal and the labour situation generally, steadiness rather than further gains may be the principal feature of the investment markets, with possibly increased activity in Variable Dividend securities.