FINANCE AND INVESTMENT
By CUSTOS
IN face of next Tuesday's Budget the steadiness of the stock markets is a good omen. Not that the Stock Exchange has any remarkable gift of foresight where the Budget is concerned, but it is clear that only a really chilly blast from Whitehall will persuade investors that there is no longer anything to go for at the current level of prices and that they have nothing to lose by selling. What are the prospects? So far as gilt-edged values are concerned Mr. Dalton will do his utmost to maintain them, both by positive action and by cajolery. I shall be surprised if on a liberal interpretation of revenue and expenditure, he does not budget for something approaching balance. That would be regarded as disinflationary and good for gilt-edged according to the orthodox City view. He will also reaffirm his faith in a 21. per cent. long-term borrowing rate and, I imagine, set up a new savings target, by arrangement with the National Savings Com- mittee, which will afford a strong safeguard against the inflation risk.
HIGHER TAX ON PROFITS
Achieved in that way a firm gilt-edged market could not fail to be a powerful sustaining influence on security values as a whole. One needs to know, however, -whether in helping gilt-edged Mr. Dalton will seize the occasion for aiming a back-hander at equity shares. At this critical stage of our industrial affairs I can see no good reason for hitting equity investors who, as a group, bear the risks. I shall not be surprised, all the same, if next Tuesday's Budget brings an increase in the Profits Tax, or a special impost on such profits as are distributed as dividends. That would please Mr. Dalton's back-benchers, and if it were on a modest scale would not bear too hardly on share prices. The main sufferers would be highly-geared shares, which must always be relatively badly hurt by any curtailment of distributable earnings.
What of speculative activity as such? Will the Budget contain proposals to tax realised capital appreciation, or may it introduce higher stamp duties on' share transfers, or may it bring a tax on Stock Exchange dealings? One or other of these possibilities may easily find its place in Mr. Dalton's plans for curbing inflationary tendencies. Higher stamp duties would have the disadvantage of leaving bearer shares untouched, while as a revenue-raiser a tax on capital appreciation should have been imposed two or three years ago and not now. Some sort of impost on Stock Exchange dealings designed to make them more expensive for the short-term specu- lator could be defended from the broad social standpoint and could be administered without any great strain. It would be bad for the Stock Exchange, but would not necessarily mean a lower level of prices.
CUNARD STEAM SHIP DIVIDEND It is a striking indication of the apathetic condition of markets in the pre-Budget week that the excellent profit and dividend announcement of the Cunard Steam Ship Company. has been followed by a fall in th, price of the Ordinary shares. Quoted around 54s. before the dividend was known, the Li Ordinary units have fallen back to 51s. 9d At this level they yield approximately 4 per cent, on the io per cent. paymeiat for 1946. That would be a generous valuation of a shipping '^equity unless one could look forward to a further substantial improvement in earnings. Last year's net profit, after taxation, rose from £445,917 to £699,064 and has allowed the directors to double the transfer to reserve at £200,000 and to increase the carry-forward from £284,846 to £403,295.
Those figures in themselves open up a prospect of better things for shareholders in the current year. Much more important, however, is the strong probability that the 1947 earnings of Cunard White Star, the principal operating company in the group, will show a substantial improvement. The 'Queen Elizabeth' was only in service as a luxury liner for about ten weeks of last year and later this year she will be joined by the 'Queen Mary' and the
'Mauretania.' In addition, the group's cargo steamers must all be making large profits in current conditions. As a lock-up shipping investment Cunard Li units seem to me to be attractive at the current price.
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