In the City
An ill wind
Tony Rudd
The markets have been a bit gruesome this last week or so; not a place for the over-fastidious. It might be an exaggeration to say that their buoyant mood has been en- tirely due to the Falklands crisis; certainly the prospect of falling interest rates in America, and therefore here, has played its Part. But the Falklands have contributed nonetheless to the upward movement of the share prices. This is not because the jobbers are a particularly jingoistic lot; it is simply because the market reflects opinion general- ly. And that holds that the Conservatives are doing extremely well out of the issue, as the polls indicate, and as a result look likely winners at the next general election, which is something they have not done for many a long month past. In this sense therefore the F. alklands have turned out to be a blessing In disguise, It is an ill wind that turns none to good.
Furthermore there is a very specific bullish influence at work in all this. It's what might be called the 'Basil Zaharoff factor', namely that wars and threats of Wars lead to armament booms. Time was When a battleship sunk put a few pence on the shares of Vickers. That was not half as Potent a trend as will be established now among the modern armament manufac- turers by the incident in the South Atlantic which led to the destruction of HMS Shef- field. Missiles are big business, even those ‘v. hich are not nuclear and are fired rather Ilk. e rockets from aeroplanes. What is even bigger business, though, is the next lot of Missiles designed to counter the first ones, namely the anti-missile missiles. They have to be much more sophisticated in their guidance systems and their general capacity to do their job than the first generation, Which merely have to pose a threat to slow- moving objects like ships. Hitting a missile with another one poses problems; it is like throwing one stone in the air and then try- ing to hit it with the second one, only of Course very much worse. But for the com- panies that specialise in this kind of business, with the electronic and specialised engineering capacity, these sorts of problem are meat and drink. No wonder therefore that following very promptly upon the news 0.1 the destruction of the Sheffield, shares in business K co siness companies specialising in this kind of b cienti like General Electric, United s and Flight Refuelling, all went higher as investors decided that this was where the money was going to be.
The argument in favour of the shares of armament companies goes further than this though. The impact of the French-built Ex- ueet missile will have left a permanent mark on those responsible for equipping defence
systems in all countries throughout the world. What this French missile has shown is that a relatively new and comparatively very cheap ($200,000 a copy, we are told) almost Woolworth weapon can penetrate and immobilise defence systems of a fairly sophisticated nature. As in the old ding- dong battle between the machine gun and the tank, the balance of war has suddenly been tilted very unevenly in one direction and all efforts will now go into tilting it back again. This means vastly increased spending everywhere upon the necessary hardware to redress the balance. So, what we can expect is for the French to achieve very substantial sales of their missiles all round the world to second and third line countries with any pretensions to power (which means practically all of them), followed by a second round of much greater expenditure as these countries buy the new generation of counter-missiles. This is going to be excellent business for all concerned, and particularly for British companies. Because the very big program- mes which are inevitably American-inspired, like the new Trident system to which Britain is still presumably committed, are based mainly on American know-how and manufacturing capacity. The fall-out for British industry was going to be pretty small, as we were beginning to find with the new Trident programme. But in this about-to- burgeon field of non-nuclear missiles tech- nology, there is no reason why the whole thing shouldn't be done by an arms in- dustry on the scale of that which we have in Britain. We probably won't do as well as the French, of course, who will now be in the business of selling not only the original missile but also the counter-measure (who better to sell the latter than the manufac- turer of the former?); anyway, it should still be pretty good going.
Whether the Church Commissioners will be filling their portfolio with the ap- propriate new investments one can only wonder. Certainly it won't bother many pension fund managers, who are paid to maximise the capital value of their in- vestments not to moralise about how they do it. The only threat in the long term to in- vestment in this area must lie in nationalisa- tion. Perhaps it won't happen under this government, which is publicly devoted to de-nationalise rather than the other way round, but eventually it would be wise for the long-term prudent investor to calculate that there is going to be trouble. It may be an ill wind but there is a very substantial political content to all this and making money out of this new range of armaments for all and sundry is not just going to be as simple as, for instance, making money out of fruit machines. Eventually the `Zaharoff factor' is going to come into play in the sense that it's all going to get a very bad and nasty name. It may be necessary to make these things but somebody sooner or later is going to object to people making a lot of money out of the process as well. For the very long term one would be safer with shares in Marks and Spencers.
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