Finance—Public and Private
The Investment Outlook
Tim firmness of high-class investment stocks is not a matter of a few weeks' or a few months' duration, but it might be said of a few years', and not unnaturally the question is often raised as to whether this firmness betokens expectation of a much greater advance in the near future, or whether, on the other hand, a. sudden revival in trade might occasion such a diversion of capital to commercial activities as to occasion a rise in the value of money, bringing about a fall in the investment markets. It is, of course, impossible, and it would certainly be unwise, to prophesy with regard to price movements of securities, but, on the whole, I think it will be found that the preponderance of evidence is in favour of quiet steadiness in the investment markets rather than of any violent movements in either direction.
PAST OPPORTUNITIES.
In this connexion it is interesting to recall the general tendency of investment stocks since the conclusion of the War. When, for example, it is recalled that old Consols fell in the year 1920 to the low level of 431 and that the 5 per cent. War Loan, which now stands at 100i1 ex dividend, dropped in the year 1920 to 81136-, the mouth of the investor may well water at the thought of opportunities missed. Not that these gains were established immediately after the conclusion of the War, for in consequence of continued borrowing by the Government and the general continuance of inflation and unbalanced Budgets, the depression in high-class securities was pronounced for a long period. Almost contemporaneously, however, with the cessation of Government borrowing and the curbing of inflation; came the turn in the tide and the investor's opportunity. Prices of high-class stocks, beginning with British Funds, advanced almost by leaps and bounds until about April, 1923, when the peak may be said to have -been Witched, though in some cases the present quotations seem once again to be approaching high level.
PAUSE IN THE RISE.
Various reasons might be assigned for the pause in the upward movement in gilt-edged securities in the year 1923. Among them, however, may be mentioned the hopes which existed of an early recovery in trade, and the idea that such recovery might involve dearer money and a diversion of attention from high-class fixed interest stocks to industrials and more speculative issues. Moreover it must be remembered that during this period there were practically no flotations of Foreign loans, apart from those specially arranged under the auspices of the League of Nations. Again it may be recollected that following upon the great rise in British Funds, the Joint Stock Banks began to realize heavily, such realization being prompted in- the first instance by a laudable desire to make balance-sheets more liquid, and in fact to cast off some of the long-dated Government loans, which from reasons of patriotism they had absorbed during the War period, while later such realizations were further stimulated by increased demands for banking loans. Altogether probably about £200,000,000 in long-dated gilt-edged 'stocks must have been sold by the banks, and such persistent sales may well have had a restraining effect upon the previous rush upwards of prices in British Funds and kindred stocks.
RESTRAINING INFLUENCES.
Moreover, during the last few years the rise in gilt- edged descriptions has also been. restrained by a con- sideration of the extent of the world's capital require- ments, while lingering hopes of a trade -revival have - also served to occasion caution on the part of the more speculative buyer of gilt-edged stocks, that is to - say, the, buyer who acquires securities for appreciatiOn capital value rather than for income yield. Even at the present moment these restraining influences may be said to be in full operation, and taking for a moment the short view of markets, the mere speculative operator might well hesitate in acquiring these gilt-edged stocks, believing that before many months have passed the rush of new capital flotations may have brought about the periodic fit of financial indigestion which so frequently characterizes the closing months of the summer.
STABILITY.
And yet the fact remains that if there has been no violent upward movement in the markets, prices have not only been well maintained, but during the present year especially have tended to improve. The chief explanation is, I think, to be found that as against the restraining influences to which I have referred there is the one all-important fact that capital resources, like the population itself, steadily increase ; and to these capital resources as owned by the British investor must be added the resources of other countries, which, since our return to the gold standard, foreigners have been more disposed than before to invest in British sterling securities. Again, as regards monetary C011- ditions, there may be little ground for anticipating a return to very cheap money, but equally it is felt that in all countries there will be a disposition to avoid extremely high rates, while in this country it is recognized that this same desire will be further strengthened by the Government's wish to obtain reasonably favourable monetary conditions for Debt Conversion. As a result of the cross play of these influences, therefore, the one against the other, it certainly looks as though stability in high-class investment stocks might reasonably be anticipated, the more so as apart from a -certain amount of purchases effected on loans obtained from the banks, British Funds and kindred stocks are for the most part held_by the genuine investor and the actual speculative position open on the Stock Exchange Must be trifling.
ARTHUR W. KIDDY.
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