Investment Notes
By CUSTOS
HE forecasters are being beastly to the I edged market and kind to select groups of
equity shares for the coming year. Certainly no one would expect gilt-edged stocks to repeat the wonderful performance of 1962 when medium-dated stocks rose by about 15 per cent. and some undated or 'longs' by nearly 20 per cent. But a long-term rate of interest of 5i per cent. is still relatively high and due for a fall to 51 per cent. at least. Moreover, Bank rate should before long be reduced to 4 per cent. I cannot therefore agree that the gilt-edged market is too high or is any more vulnerable to a breakdown of the Brussels negotiations than equity shares. (A run-away from sterling in that event is much more likely to be met by exchange controls than by a 7 per cent. Bank rate.) I would expect bonds to move up gradu- ally and finish the year with perhaps less than half the gains of 1962. The economic prospect is not rosy and the bleaker it gets the more likely it is that we shall, have cheaper money.
Industrial Equity Prospects The safest equity shares are those which .are bound to reflect the benefits of increased gov- ernment spending on electricity distribution, on
housing, on roads and other public works-- whichever Government is in power. I' have already recommended these shares—in particular, BICC, REYROLLE, GEC, INTERNATIONAL COMBUSTION —and they are still worth buying. The Chan- cellor has not yet released enough purchasing power to make the store group attractive, but the help he has given to motors should make the component companies worth having on dull days in the markets. 1 recommended ASSOCIATED ENGINEERING last year, but too early. At the present price of 13s., against a high of 15s. 71d., the shares are probably now ripe for a pure chase, to yield 5 per cent. on dividends and nearly 10 per cent. on earnings. The recent re port was encouraging and, as the motor industry' is the company's largest customer, the spring revival in the motor trade should produce much. better profits next year. The capital investment programme should be finished by the end of 1963 and the fruits of this should be realised over the next few years.
Finance and Property Shares
The finance group is out of favour and I would' not buy banks, merchant banks or hire-purchase finance shares, except Mr. Hodge's ANGLO AUTO FINANCE recently recommended. 1 would hold, off insurance shares until the annual reports are presented next month, which will probably de- press the market. At lower prices they would be selectively worth buying. Property shares have been written down because of the adverse effects of a Labour victory in the coming election. but in my opinion this has been overdone. It is true there are some vulnerable property shares—the' big groups with construction companies which. have to be given work at any price—but there are other companies quietly developing shopping and office blocks in provincial cities which have contracts with the local authorities which can- not be upset by a change of government. I aln thinking of companies like COPTHALL HOLDING and ALLIED SECURIlIES.
Commodity Shares
The forecasters' have fastened on commodity shares, which have been out of favour for S'. long. Certainly there has been a 5 per cent. recovery in commodity prices since the autumn, the demand-supply position has been improving and there is a better prospect of world com- modity schemes coming forward to help the pri- mary producers overseas. I would therefore regard RIO TINTO ZINC at under 20s., to yield 74 per cent. (in spite of the recovery from 15s.), and LONDON TIN at 16s., to yield 9.3 per cent., as good speculations and, if you can stomach the political risk of Northern Rhodesia, NCHANGA: at 41s. 6d., to yield 16.7 per cent. Oils have already had a good recovery and I cannot help reminding readers that I recommended SHELL HI May last at 32s. 6d.: they are now 41s.
Previous page
