30 JANUARY 1948, Page 28

FINANCE AND INVESTMENT

By CUSTOS SOONER than most people expected, France has put the devaluatior cat among the pigeons and set investors wondering whether the time has not already come for adjusting portfolios to an entirely new set of conditions. It can be said at once that 'neither this country not the International Monetary Fund at Washington has raised any objection to franc devaluation as such. For many months it has been clearly recognised that at its former parity the French franc was grossly over-valued in the international exchange market. What has aroused criticism and, in my view, quite rightly, is France's decision to open a free market in dollars and gold in Paris, the effect of which is bound to be a lowering of the status of sterling as an international currency. As to the trade implications of a devalued franc, they should not be very serious. French exports compete -with British exports only in a limited field and most City people will readily endorse Sir Stafford Cripps's pronouncement that the French move does not make a readjustment of the exchange value of the pound either necessary or advisable.

It certainly should not be necessary, once the exchange controls in Paris and London are tightened up, to meet the strain imposed by the French developments alone. Sterling devaluation is obviously not advisable at a time when there is no evidence, except in one or two special markets, that British goods are over-priced. The classic argument for devaluation is that it enables an exporting country to adjust itself to a position in which its selling costs are too high. That was the condition which prevailed in 1931 and which this country tackled, on devaluation lines, with considerable success. Today, with dollar imports at an almost irreducible minimum, the position is vastly different. A lower external value for sterling would only add to the sterling cost of imports, while it could hardly affect exports which are strictly limited by the physical quantities available.

GOLD AND EQUITIES

Having recorded my view that there is small likelihood of any early devaluation of the pound, I must repeat the advice 1 gave a week ago that international currency conditions are such that any well-balanced portfolio should now include a smattering of gold shares, commodity shares and some of the leading industrial equities. In the gold share field a logical case can be made for the shares of low-grade producers now operating on non-existent or exiguous profit margins. These are the companies which stand to benefit most from any increase in the selling price of gold. There are plenty of them among the South African mines, as well as in West Africa and Western Australia. Buyers should realise that they are incurring the normal risks of a mining investment and be prepared to take the long view. In other words, they are paying a sort of insurance premium against the risk of a devalued pound. Among the commodity groups I regard oil, the base metals and rubber as having claims on the attention of the speculative investor. The case for industrial equities must be linked rather with the broader inflationary situation than pure devaluation, since any early change in the external value of the-pound could only result from a competi- tive condition of international trade which would not spell any good for British exporters.

• A SCRAP METAL SHARE

Among the low-priced shares which have been adversely affected by a substantial new issue of capital are the 2s. Ordinaries of Coley Metals, now quoted around 2i. 9d. Towards the end of last year this company offered new shares to shareholders in the proportion of one new for every share held at a price of 2s. 6d. and a fair pre portion of the offer was left on the hands of underwriters, with a consequent depressing effect on the market. In view of the com- pany's good trading position and the promising prospects there should now be scope for some recovery. The company carries on business as metal merchants and founders, specialising in aluminium and its alloys. Profits have followed an uneven course in recent years, but apart from 1945, when a heavy loss was incurred on the realisation of stocks of scrap metals built up in the early war years, earnings have followed an upward trend. For the year to January 31st, 1947, profits amounted to L7•7,o77, equivalent to about 4o per cent., subject to tax, on the issued capital as doubled by the recent new offer of shares. A 'to per cent. dividend was paid and it is believed that trading for the year to January 31st, 1948, has yielded distinctly satisfactory results. It will not be surprising, therefore, if there is some increase on the to per cent. dividend now in force. -On the to per cent. rate the 2S. shares are yielding about 71 per cent.