FINANCE
INFLUENCES RESTRAINING INVESTMENT AMONG the many enquirers who profess to be seeking an investment I wonder how many could be put down as seeking, not a permanent safe income from investment, but some stock likely to appreciate in capital value within a reasonably short period. It is an almost daily experience to be asked to recommend some safe "investment," which, however, must be one likely to show a good rise within the course of a few months. In other words, the so-called investor is not an investor at all in the true sense of the word, but is to all intents and purposes a dealer in stocks hoping in the course of a year to obtain from the buying and selling of securities a much greater income than could be obtained from the investment of the principal in, say, a sound 3f per cent. or 4 per cent. security.
Yet having regard to all the circumstances of the post-War years and not least those of the past few years, this tendency on the part of the investor is by no means surprising. In the first place the mere fact of high taxation and increased cost of living together with the very, low interest yield on gilt-edged securities constitute an impelling force in the search for additional income. In the second place apprecia- tion in capital value has the additional charm that it is not subject to taxation; in other words the profit is an addition to capital and not to income. A further explanation of the tendency to enquire for those securities promising an increase in capital value is undoubtedly to be found in the fact that, say from the years 1932 to 1936 inclusive, the tendency of Stock Exchange securities to appreciate in capital value was so general and so persistent as to encourage the belief that a one-way movement could, more or less, be relied upon.
Tire RECENT FALL. • During the past six months, however, there has been such a setback in Stock Exchange securities in almost every department as to pretty well destroy the illusion that securities can only move in one direction. True there has been ample explanation of the setback in the disturbed international outlook, but the causes operating have been external, that is to say have not been concerned mainly with the intrinsic merits of the securities which have declined, and uninvested resources are still very large. Hence there is an underlying feeling that if only the political sky would clear, we might easily see a restoration of security values to the 1936 level, with perhaps even a still further advance, remembering the extent to which lack of confidence has occasioned the hoarding both of gold and of notes to an extent almost unprecedented in history.
AMERICA'S PERPLEXITIES.
Rejecting, however, for the moment these bright visions and turning from fancies to actual facts, we must note that in two great countries—Great Britain and America— which, at present at all events, are enjoying conditions of peace, there is hesitation on the part of the investor with regard to the future course of securities. In the case of our own country, which is dose to the area of European distur- bance, and which moreover is so intimately concerned with developments in the Far East, this hesitation is scarcely surprising, but in the United States far removed from the area affected by hostilities and with gold holdings such as never have been known in the history of the country, it might be supposed that there was little occasion on the part of her nationals for nervousness with regard to the future, such as that which has occasioned a relapse in securities in Wall Street, even more severe than that which has taken place on the London Stock Exchange.
WASHINGTON POLICIES.
Nevertheless, it is not, after all, very difficult to understand and appreciate the perplexities of the American investor. He may not be worried about America being entangled in a war, or be considering what will be the outlook for the country when rearmament expenditure ceases, but he may be equally concerned with other matters likely to affect the course of his investments, such for example, as the final effect of huge Budget deficits, and at some later date the effect of the withdrawal of many millions of money which have been sent from Europe to the United States, either for safe custody, or for Stock Exchange transactions. More- over, apprehensions upon this latter point are quickened by the ihought that at any time Washington may impose such taxation upon foreign money in the United States as to precipitate the withdrawal, and at the same time restrain any great advance in prices of securities.
CONTROL OF SPECULATION.
This last-mentioned consideration brings into view a some- what similar factor operating in this country. On both sides of the Atlantic there have been obvious signs of the authorities being anxious to do everything possible through monetary policy and other measures to stimulate trade activity, and yet at the same time to prevent any- thing like a boom in securities or commodities resulting from speculation as distinct from legitimate activities. This tendency is perhaps even more apparent in America than in this country, but, speaking broadly, there is the feeling here also that while governments may be desirous of pro- moting trade activity and trade prosperity, there is appre- hension as to how far industrial activity and prosperity may be actually hindered by anything in the nature of speculative activity, whether in commodities or in securities.
FUTURE RISES RESTRAINED.
Needless- to say I am not concerned here with the merits or demerits of these political tendencies, but merely with their effect upon the problem of those who are seeking for appreciation in the market value of securities. And looking at the matter from that standpoint I cannot help thinking that while undoubtedly an improvement in the international outlook would have an immediate effect in occasioning an all-round advance in securities, and especially in those which haye been most affected by political alarms, the permanent extent of the rise in commodities and industrial shares might be restrained by those policies connected with domestic politics to which 1 have referred. ARTHUR W. KIDDY.
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