3 FEBRUARY 1956, Page 30



So dull have the stock markets become, waiting for the new Chancellor to show his hand or New York to' show a lead, that for the first time a steel denationalisation issue has failed to be an immediate success. It was fortunate that SOUTH DURHAM STEEL AND IRON had not bean heavily stagged. If it had been it would have opened at a heavy discount, As it was it closed steadily at 9s. 1 lid. (10s. paid) on the first day of deal- ings and later improved to par. I have already expressed my opinion that this is a sound long-term investment yielding 5.8 per j cent. A well-known firm of brokers has just issued ,an appraisal of the changed invest- ment merits of steel shares. The prices of British steel products are low as compared with those of Germany or the USA; demand is still unsatisfied; plants are being extended; there is ample cover for present dividends. .1 agree that they are attractive industrial investments, whose market values are well backed by rising assets values. If dividend yields remain comparatively high because the equity capital is often highly geared, steel shares should still resist the declining trend in the industrial share market. The market which seems to me most undervalued is that in oil shares, which are at present bedevilled by Wall Street and the Middle East. Here is a case where the investor should find patience will bring

rewards. * *

My exhortation to the small investor last week to buy some of the attractive short-. dated Government bonds in the market drew a letter from a reader who had bought National Savings Certificates. Had I for- gotten the merits of this form of saving? 1 suppose the chief merit of these Saving Certificates is that one forgets in what safe corner one has deposited the !Zook, so that the temptation to cash in and spend is not a present one. But the return on them can now be bettered If held to redemption the return on the Certificates is £3 Os. ltd. per cent. free of tax, which is equal to £5 Gs. per cent. if 'grossed up' at the tax rate of 8s 6d. in the I. But if you ask a stockbroker to buy for you in the market Savings 21 pet cent. 1964-67 at the current price of just under 80, you will acquire a bond which will give you a running return of £3 3s. pet cent. (against nil on Savings Certificates) and a gross yield to redemption in eleven years of £4 18s. 5d. per cent. If the tax- free element—the 20 points gain on redemp- tion at par—is grossed up at the tax rate of 8s. 6d. in the £, the true yield to redemption works out at £6 7s. 9d. per cent.—£1 Is. 9d. more than the true yield on the Savings Certificates. This is the highest yield offered on any dated British Government stock except the very short Exchequer 2 per cent. 1960 which I mentioned last week. Of course, the Savings 2+ per cent. 1964-67 bonds will fluctuate in value with the rest of the market, but in the event of a general fall in the medium-to-long market, I would expect Savings 2/ per cent. to hold up better than any other. And the holder can sell at any time and obtain his cash in a few days —as quickly as he can encash his Savings, Certificates.,In view of the attractiveness or these bonds it is possible that the Treasury will before long announce a new Issue of Savings Certificates on more favourable terms. The Prime Minister has said that the Government is considering how it can foster an increase in savings. This seems to r11 another good reason for buying Savings 21' per cent. 1964-67, for it is most unlikely that the true redemption yield on these bonds will be bettered.


As a result of the rise in Japanese bonds higher gross redemption yields can now be obtained on some German bonds. These are not every one's political choice, but every- thing has its market, price, and a return of £8 14s. per cent. to gross redemption for the German Konversion Kasse 4 per cent' 1963 series A bonds at 76 is not over- rating German credit or underrating the German risk. On the better-known German 5 per cent. (Dawes) loan at 76+ the gross redemption yield is 8 per cent.