FINANCE-PUBLIC & PRIVATE.

By ARTHUR W. KIDDY.

THE FINANCIAL OUTLOOK.

[To the Editor of the SPECTATOR.] Srn,—So far as Finance and Commerce are concerned, the two outstanding features of the year which is now closing are easy to recall. For the greater part of the year, at all events, it would be difficult to find a precedent for such stagnant conditions of trade or such deplorable conditions as regards unemployment. Equally, however, would it be difficult if not impossible to discover a year in which a greater advance occurred in public securities than that which has taken place during 1922. When writing a twelvemonth ago concerning the outlook I expressed the view that during the early part of the year a rise in Stock Exchange Securities was likely to be a leading feature, but let me hasten to confess that I never anticipated that the rise would be of so remarkable a character. I had hoped, indeed, that before the end of the year a trade revival might have been sufficiently marked to counteract the abnormal influences operating on the stock markets. In noting the tendency of prices for the year, I cannot do better than cite the valuation made by the Bankers' Magazine of its 387 Representative Securities, from which it will be seen that on these stocks alone the advance in capital values for the year is no less than £700,000,000. The movements are shown in the table on the next page. * * It will be seen that the advance in fixed interest stocks, and the rise in variable dividend securities which includes such investment descriptions as Railway Ordinary stocks and also the purely speculative markets, has been pretty evenly divided, but a close study of the tendency of movements in these groups can be recommended to the potential investor because they not only focus the net effect both of political and financial influences upon the markets during the past year, but they suggest the possible tendency of values in the New Year. I (Continued on page 1016.) will deal first with the effect of the influences for• the past year and then very briefly with the suggestions I think they convey as to the possible course of values in 1923. * * The first point to be noted is that whereas, with a few exceptions, stocks in the variable dividend list closed the year not far from the best point, the gilt-edged market s uffered a moderate reaction, so that if, say, a few months ago the valuation of securities had been considered it would have been found that whereas the investment group showed an even greater advance than the net gain now recorded, the second group of securities would have shown a much smaller improvement. What, then, were the main influences responsible for this great rise in investment securities during the early part of the year and what were the causes of the tendency during the latter half of the year for interest to shift from the gilt- edged to the more speculative groups ?

What may be termed the initial start of the rise in gilt-edged securities really occurred during the latter part or 1921, an important influence being the belief that the Government had at last ceased to borrow and that a reduction rather than an increase in debt would be the order of the day, added to which there were also some signs of a reduction in national expenditure. In other words, it was considered that the tide had turned, and it was perceived that, given greater confidence in the national finances, other influences in the shape of stagnant trade and cheap money were likely to prove an additional force impelling an upward movement in Government securities. It was, indeed, these last two factors which were mainly responsible for the great rise in gilt-edged stocks during the first half of 1922-the movement also being helped by the Budget statement giving a small reduction in the income-tax. A further factor which tended to focus investment activities in the best class of securities was the unsettled political and financial outlook, which had the inevitable effect of making " safety first " the watchword of the hour.

When we come to the second half of the year, however, it is possible to note some change in the influences oper- ating. British Funds having been hoisted to a level yielding a bare 5 per cent., with a five shilling income-tax deducted from dividends, it was felt that the upward movement had gone far enough, for although cheap money continued it was considered that capital demands the

TABLE-SHOWING VALUES OF SECURITIES AND THEIR AGGREGATE VARIATION DURING THE PAST YEAR.

Nominal Amount (Par Value).

1000's omitted]

Market Department containing Values.

Dec. 18, 1922. Chang* on Year. Increase or Decrease.

Per cent.

3,568,600 10 British and Indish Funds 3,221,811 +340,111 +11.8 58,950 9 Corporation (U.K.) Stocks .. 43,005 + 5,876 +15.8 83,550 8 Colonial Government Stocks .. 67,863 + 9,450 +16.1 22,300 8 Corporation Stocks (Colonial) , 19,523 + 2,382 +13.7 21,050 7 Do. do. (Foreign) .. 13,149 + 1,121 + 9.3 598,230 26 Foreign Government Stocks .. 223,211 + 3,464 + 1.5 219,250 12 British Railway Debenture Stocks 148,920 + 19,592 +15.1 158,400 7 Do. Preference Stocks 107,528 + 21,631 +25-1 132,000

7 United States Bonds (Gold) ...

121,840 - 8,870 - 6-7 4,860,330 94 Fixed Interest Stocks .. .. 3,068,850 +394,737 +11.0 376,460 28 British Railway Ordinary Stocks 258,193 91.550 +54.9 18,900 5 Indian Railway Stocks .. .. 18,703 2,841 +17.8 88,350 5 Colonial Railways .. .. 105,014 9,819 +10.3 474,000 11 United States Railway Shares .. 422,830 15,815 + 3-8 141,200 20 Foreign Railways .. ... 90,451 33,769 +59-5 59,685 18 British Bank Shares .. .. 171,667 23.950 +16-2 43,000 18 Colonial and Foreign Bank Shares 84,999 7,515 + 9.6 18,121 10 Brewery Stocks .. .. .. 39,989 4,930 +14-0 17,750 7 Canals and Docks .. .. 13,829 878 + 6.8 146,916 38 Corn. Industrial Shares .. .. 336,774 86,183 +34.3 9,537 8 Electric Lighting and Power .. 11,224 1,609 +16-7 15,100 9 Finan. Land ct Investment Shares 21,380 4,480 +26-5 30,680 7 Gas Stocks .. .. .. 29,269 7,550 +34.7 9,343 17 Insurance Shares.. .. • • 96,183 9,261 +10.6 58,294 14 Iron, Coal and Steel Shares • • 70,139 15,237 +27-7 3,100 5 Nitrate Shares .. .. 3,783 1,086 + 4-0 42,649 10 Oil Shares.. .. .. • • 142,486 34,358 -19.4 5,402 9 Rubber Shares .. .. 8,069 1,175 +17-0 17,456 5 Shipping Shares .. .. • • 28,413 4,389 +18.2 1,890 . 6 Tea Shares .. .. 4,206 936 +28.3 20,808 9 Telegraphs and Telephones 37,378 5,142 +15.9 27,716 7 Tramways and Omnibus .. - 13,229 4,139 +45.4 29,517 19 South African Mines .. 82,130 20,128 +324 28,735 6 Copper Mining Shares. 40,631 1,546 - 3-0 11,859

7 Miscellaneous Mining Shares

7,631 841

+12.3

1,696,468 292 Variable Dividend Securities .. 2,138,585 +317;349 +17-6 ,6,556,798 887 Grand totals .. 0,105,435 +712,086 +130 .

world over were too great to permit the idea that as regards long-dated loans any really great reduction in interest rates was justified. Accordingly, speculative investors began to look around for markets where low prices involved higher income in dividends, and this tendency was accentuated by the fact that there were not wanting some indications of an improvement in trade. Our actual figures of foreign trade became more hopeful as the year progressed and evidence of improved conditions was also afforded by the movements of the Foreign Exchanges, one of the features of the year being the rise in the Ameri- can Exchange. * * * * It will be seen that a feature of the year was the great rise in British Railway ordinary -stocks, and I doubt whether it would be possible for any reader of the Spec- tator to find a previous occasion when within the space of one year those stocks rose by something like 55 per cent. Prices had, of course, fallen to an absurdly low level, while the recent merger schemes have added a spice of speculative interest to the market owing to conjectures as to the measure of economies which can be effected under the new arrangements. Further evidence of hopes of better trade is also to be found in the great rise in commercial and industrial shares and in the shares of iron, coal and steel companies and in shipping shares. Most of the purely speculative markets also participated in the general rise, the only noteworthy exception being Oil shares, which after exceptional firmness for a number of years reacted during the past twelve months.

It is easy to summarize the main features of markets during the past year and the influences responsible for prices movements, but it is quite different to indicate the prospects for 1923. Moreover, it has to be admitted that on the very threshold of 1923 we shall be up against developments which must inevitably exert a great influence over prices. On January 15th the next cash instalment of German Reparations is due, and at the very beginning of the year the Allied Premiers will presumably assemble again to consider the position. A little later we shall doubtless learn something of the progress of negotiations with respect to the funding of our debt to America, and upon the outcome of these two great conferences will probably depend the solution of the larger problem of international debts as a whole, while equally upon a satisfactory solution of that question will largely depend the course of financial and economic developments in Europe. Given reasonably favourable developments in these directions and the present im- provement in trade should soon extend, in which case nothing is more probable than that the tendency for gilt-edged stocks to stagnate and the variable dividend securities to advance will again be noticeable. If, how- ever, these Reparation and Debt conferences are to be abortive, it is difficult to see how trade can expand or confidence become pronounced. Still, and by reason perhaps of the hope which " springs eternal," I think that if a census of Stock Exchange views were taken it would point to expectations of a gradual improvement during the coming year in the political and economic outlook in Europe, a moderate revival in trade, a slight hardening of money rates, comparative steadiness in gilt-edged securities, and some further advance in the more speculative departments. These, however, are conjectures ; time alone can say whether they are justified. -I am, Sir, yours faithfully, The City, December 27th. ARTHUR W. KIDDY.