FINANCE AND INVESTMENT
By CUSTOS
WHEN normally stailkindustrial Ordinary shares, such as Woolworth, fluctuate within extremes of to per cent. in less than a week it is clear enough that the average investor is finding it hard to make up his mind. It is also convincing proof that the much-vaunted jobbing mechanism of the Stock Exchange is creaking rather badly. As I have often eaphasised in these notes, markets are now ridiculously " thin, in the sense that jobbers are unwilling to take up positions either one way or the other, with the inevitable result that prices swing about violently in response to any modest buying or selling. While one can scarcely blame the jobber for refusing to take a view which may cost him a good deal of money if he is wrong it is neve.sheless a poor advertisement for the market when price movements;--'on a small turnover, read like a fever chart. Gone, it seems, are the days when men of substance woud pit their wits against the nervous seller or the over-optimistic buyer and take a chance on being wrong, though I must add that part of the trouble today is the lack of full " continuation " facilities for " bulls " and " bears."
INVESTORS SEEK BARGAINS
Given the existing technical conditions the investor must be prepared for wider fluctuations than the day-to-day news would justify. He must even expect to see purely technical influences causing movements in prices which seem quite irrational against the background of events. This week's behaviour of the market, for example, would need a lot of explaining to the ordinary economic observer. The outlook in the broadest sense is no better than when the crisis broke ; the coal position has deteriorated and there is no solid ground for expecting any immediate American help. Yst industrial share prices have moved up and in many instances have recovered the losses of the previous fortnight. The explanation, at least partially, is technical. Jobbers were over-sold and the pessimists in the City had taken debentures on the " bear " side. Only a modest volume of buying was therefore needed to set prices rising. But it is also true that sentiment has strengthened to a point at which many investors with available funds have been prepared to look for bargains after the fall. For this cautious hopefulness there is something to be said except on the theory that financial troubles will prevent the world from satisfying the enormous banked-up demands which still exist and that further tax imports will dim the outlook for Ordinary shares. I think the scales are fairly evenly balanced and would certainly advise a cautious policy until this country's position is a good deal clearer.
A GOOD SHIPPING SHARE In the recent set-back in markets the shipping share group has, rather surprisingly, proved as vulnerable as any. The explanation offered by jobbers is that the substantial rise which took place in leading shipping shares during the past two years attracted a speculative following to the market and resulted in weak positions being built up. So far as earnings are concerned, there are no indications of any weakening in freight rates, and it seems clear that except for the companies mainly dependent on luxury passenger traffic, profits could only be seriously affected in the event of a shrinkage of international trade.
Meantime, at the low levels to which share prices have fallen some of the leading companies seem to offer good opportunities for the long-term investor. A case in point is the 16s. units of the Britain Steamship Company, now quoted around 35s. Some few months ago the market quotation was 58s., but the capital was doubled in June by an issue of new shares with the backing of Morgan Grenfell and Co., the merchant bankers, made at a price of 42s. In the depressed conditions of the market a substantial part of this issue was left on the hands of underwriters and the natural result has been a slide in the market price to the present level. This company operates the Watts-Watts Line running between the East Coast of Canada and the Continent, and has recently put in hand a considerable new building programme. For 1946 profits amounted to over 7o per cent. on the issued capital, out of which 'a 15 per cent. dividend was paid, and the directors intimated when the new issue was made in June that there should be no difficulty in maintaining the 15 per cent. rate on the doubled capital. At 35s. the yield offered is practically 7 per cent., which seems a generous return on the equity of a sound shipping concern with first-class management. In any improvement in general market conditions these shares should stage a good recovery.
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