FINANCE
THE MARKET OUTLOOK—HOME RAILWAY PROSPECTS ALWAYS subject, of course, to the absence of any serious political disturbances, I cannot help thinking that the outlook for securities during the final quarter of this year is moderately favourable. It has to be a very exceptional year for an uninterrupted movement of securities in the upward or downward direction to continue throughout the whOle twelve months, and during the first nine months of this year the depreciation in public securities has been very great. It would be difficult, if not impossible, to estimate the shrinkage in capital values as expressed in market quotations of securities throughout the entire list, but even taking the 365 representative securities selected by the Bankers' Magazine it may be noted that the valuation of Septem- ber 18th as compared with the middle of December in last year shows a depreciation of no less than £560,000,000, and during the last month alone the shrinkage in the group was as much as LI r,000,000. Moreover, there are few departments of the Stock Exchange which have escaped the general fall, though during the earlier part of the year the principal feature was the sharp setback in British Government stocks, and latterly in the variable dividend group the fall in American securities has been an outstanding feature.
INFLUENCES OPERATING.
The main adverse influence extending throughout the year has, of course, been the disturbed international political outlook, intensified during recent months by the war in the Far East, but during the earlier months especially there is no doubt that the increase in the National Expenditure, the rise in taxation, and in particular the imposition of the N.D.C. tax bad a considerable effect both on gilt-edged securities and upon Industrial shares.
HOME STOCKS IMPROVING.
During recent weeks there has been a tendency to turn to Home securities ; gilt-edged stocks are helped by the continual cheapness of money, and Industrial shares by the fact that Home trade remains active. English Railway stocks, however, have been a hesitating market, especially during the latter part of the year, being affected by the uncertainty with regard to increased wages demands. For the time being, at all events, the outlook in that direction would seem, however, to be clearer. Also, because we are on the eve of the advance in railway rates, it seems not unlikely that more attention may be given in the near future to Home Railway securities. I am still inclined to regard the Ordinary stocks of most of the Railways as coming into the speculative class, but I consider that some of the prior charge stocks, even if no longer in the trustee group, are well worth con- sideration owing to the very heavy margin of security which now can be shown in the shape of large surplus revenues even after allowing for increased working expenditure.
HOPES OF HIGHER REVENUES.
At the same time, and regarding the Ordinary stocks for the moment somewhat in the light of speculative counters, I should not be surprised if prices were to respond a little in the near future to anticipations of increased revenues arising out of continued trade activity plus the effect of higher railway rates.
This, however, will largely depend upon whether the moderate increase in railway charges which commences as from today has any effect in restraining the volume of traffic. Both as regards passengers and freights it would almost seem as though the advance in rates would be too small to contract the use of the railways and, as regards passenger travel, the managements have undoubtedly been wise in retaining the cheap monthly fares as the basis on which the small increase will take place.
Within a fortnight from now it should be possible to get a very fair idea of whether the new rates are proving thoroughly profitable to the railways. If no contraction takes place in the volume of traffic, the increase in charges, though trifling to the individual, should in the aggregate mean much to the railway revenues and indeed, after viewing the matter on the basis of increases, it has been estimated in some quarters that a 5 per cent. rise in charges should almost double the recent increases which have been shown from week to week. During the current year there has been an average increase each week on the Great Western line of about £25,000, on the L.M.S. of about £50,000, on the London and North Eastern of just over £4o,000, and of about £15,000 on the Southern, so that anything like a doubling of these increases would materially swell the volume of traffic revenue for the final quarter of the year. And already during the first 37 weeks the four Trunk Railways have shown an aggregate increase of £4,866,000. It is, of course, difficult to estimate the extent to which the final aggregate increase in gross revenues for the year may be offset by increased working expenditure and, in that connexion, the half-yearly statement of the London, Midland and Scottish was not too encouraging, inasmuch as it showed that out of a gross gain of £1,410,000 only a little over £310,000 was secured as nett. At the same time, it must be remembered that the Ordinary stocks of most of the English Railways stand at a very low figure and, even based upon possibilities for the current year, the yields at present prices promise to be fairly high. London, Midland and Scottish, for example, give a yield estimated in some quarters at nearly 7 per cent. On the other hand, labour demands are likely to be progressive, and therefore, though Prior Charge stocks on many of the companies are, I think, undervalued at the present time, from an investment standpoint, I should regard some of the Ordinary stocks as undervalued merely from the speculative point of view, and those who purchase at present prices will probably do well to be content with a moderate capital appreciation rather than to regard them as permanent (For Financial 1•Totes, See page 564.)
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