Finance—Public and Private

The Half-Year in Public Securities

THE first six months of the present year have pretty fairly fulfilled the expectations formed last December with regard to prospects for 1928. Whatever may have been the conditions of trade—and unquestionably they • have been in many respects disappointing—there has been considerable financial activity both as regards existing securities on the Stock Exchange and the steady flow of new capital creations. During the month of June there was a fairly general set-back in securities, but it only serves to emphasize the great advance which has taken place since the beginning of the year. If the prices of 365 representative securities selected by the Bankers' Magazine are compared with those ruling at the end of last December, it will be seen that there has been an aggregate appreciation of about £150,000,000 for the six months. Previous to June the appreciation was about £240,000,000, but owing to the reaction last month there was a fall in the variable dividend securities of about £90,000,000.

RESTRAINING INFLUENCES.

This steady rise in public securities is the more striking because it will be remembered that while last December it was possible to take a favourable view of the outlook for stocks, it was pointed out in these columns that there were numerous factors within sight calculated to have a restraining effect. During the past six months, for example, we have had such points to keep in mind as the uncertainty with regard to the stabilization of the franc, the general elections in France and in Germany, and the Presidential nominations in the United States. Undoubtedly a recognition of these important influences, and especially a consideration of the uncertainty with regard to the franc in the light of the large balances in New York and London known to be held by the Bank of France, restrained, to some extent, speculative commit- ments in securities.

FAVOURABLE FACTORS.

Looking back now, however, on the half-year, it must be admitted that developments on the whole have been of a favourable character, and the material set-back in securities during the last month can be attributed to the simple fact of speculations in Wall Street having for the time being assumed unwieldy dimensions. The general election in France resulted in a' decisive victory for M. Poincare, and in Germany the outcome of the general election was not an unfavourable one. There was some disappointment, perhaps, with regard to the United States that. Mr. Coolidge adhered to his decision not to stand again for the Presidency, but for the moment, at all events, the feverish excitement incidental to the period of the nomina- tion in the United States has passed, though doubtless there will be a period of some political unsettlement until the Presidential election has taken place in the autumn. The stabilization of the franc has, at all events, removed one great element of uncertainty from the Money Market and, on the whole, must be counted as one of the favourable developments of the half-year. When, there- fore, the various developments are carefully weighed in the balance, it has to be admitted that the favourable factors have predominated during the half-year, and to them might be added the fact that apprehensions of the past national financial year closing with a deficit were not fulfilled, the Chancellor obtaining a small sum on the right side. It is true, of course, that the year has been a disappointing one as regards the heavy industries of the country, but regrettable as that may be from the general standpoint of the economic position of the country, it serves as one explanation of the concentration of attention upon the security markets.

FALL IN RAILS.

Before discussing the probabilities of a continuance during the second half-year of the general upward move- ment in securities it may be well to note the tendency li

during the past Lf-year of the various kinds of stocks,

As might be supposed, having regard to the disappointing character of trade developments, Home Railways have constituted the most striking exception to the general improvement, the fall in that department being serious, having regard to the fact that it marks the continuation of a depreciation which has been going on for some few years. Another exception to the general rise has been the set-back in Rubber shares, which have been hit severely by the decision of the Government to remove the export restriction with regard to rubber from the Malay States. With those exceptions, however, and perhaps a few of the miscellaneous Mining shares, the upward movement has been a very general one.

STRENGTH OF INVESTMENTS.

Although activity has chiefly centred in the Industrial and more speculative descriptions, reference must he made to the quiet appreciation in high-class investment securities, because that appreciation has undoubtedly represented a tendency extending over a considerable period for fixed interest stocks to advance. British Funds and kindred securities are appreciably higher for the six months, and Consols, for example, which gave a yield at the end of last year of a full 44 per cent., now only yield about £4 9s. per cent., while the 5 per cent. War Loan is now well over par. Moreover, this same upward ten- dency has had the effect of raising the level of Home Corporation stocks. At the beginning of the year it was impossible for these to be taken on better terms than the full 5 per cent. yield, but latterly the tendency has been in the direction of 4f per cents, at about 994.

RISE IN INDUSTRIALS.

In the group of variable dividend stocks selected by the Bankers' Magazine, the appreciation in Stock Exchange values for the six months has been well over £100;000,000. The most remarkable gains have occurred in some of the Industrial shares and particularly in some of the newer descriptions, such as the Artificial Silk and Gramophone group. For the most part it has been a carefully con- sidered policy of selecting stocks with a promise of appre- ciation more with a view to large dividends and capital appreciation in the future than to immediate income, a tendency increased at the present time by the heavy exactions of the Income Tax. Over a period of about two years the variable dividend group of stocks selected by the Bankers' Magazine has risen by something like 25 per cent., an almost unprecedented movement within so brief a period. United States securities have risen sharply, but the rise elsewhere has been very general, including such groups as British Bank shares, Brewery stocks, Canals and Docks, Commercial and Industrial, Electric Light and Power, Gas stocks, Insurance shares, Iron, Coal and Steel stocks, Oil shares, Shipping shares and Tramway and Omnibus, while a feature has been the jump in Telegraph and Telephones.

FUTURE PROSPECTS.

The fact that, as already mentioned, variable dividend stocks have risen as much as 25 per cent. during the period of about two years in itself suggests caution with regard to prospects for the second half of the year, and this caution, moreover, obtains some further emphasis from the fact that the set-back during the month of June was, in large measure, directly traceable to an unwieldy speculative position having been created in Wall Street, where brokers' loans rose to so high a figure as to occasion the Federal Reserve Bank to raise their rate of discount. On the other hand, and while the market here was, of course, affected by New York selling, the technical position of our market has shown considerable strength, and unless there should be some untoward development in the mone- tary situation, it would not be at all surprising to see the activity in securities resumed before long, though whether in view of the proximity of the summer holidays there may now be a pause until the early autumn it is impossible to say.

AN IMPROVED POSITION.

So far as gilt-edged securities arc concerned, however, confidence has undoubtedly been increased by the im- provement which has taken place in the strength of England's position during the first half of the year. At the beginning of January the total stock of Coin and Bullion held by the Bank of England was £171,000,000, and the Reserve was L34,000,000, while the proportion of cash to liabilities was 22 per cent. The last Return issued during the month of June, however, showed the total holding of Gold and Bullion to be £189,000,000, while the Reserve stood at £55,781,000, and the proportion of cash to liabilities at 43 per cent. Moreover, in con- sidering monetary developments during the past six months, it is all to the good that the necessary legislation should have been obtained for the fusion of the Treasury Note and the Bank of England Issue. Not that it is a point necessarily making for monetary ease, but it is a point making for monetary soundness, and in the long run monetary soundness works favourably to the financial interests of the country as a whole.

ARTHUR W. KIDDY.