Investment Notes
• By CUSTOS
HEN the recovery in the gilt-edged market
'W
VV had pushed the price of War Loan up to 57 and the yield down to 6/ per cent, it was everybody's guess that the Treasury would yield
to the temptation to issue a new long-dated loan. And so it happened-,-with £600 million of 6 per cent Funding Loan at 1993 at 96, to yield 6# per cent flat and £6 6s. 2d. to redemption. No one seems to pity the taxpayer who has to foot the bill or this expensive borrowing. Although the total of Treasury bills outstanding is histori- cally low in relation to the national income, I suppose the Government felt that it could not add to the volume of floating debt while it was owing so much to central banks overseas. But it might have waited until the market had risen far enough to pull the rate of interest down to 6 per cent. The new loan opened at its issue price, being somewhat dear compared with other similar-dated stocks, but the market is firm and will move higher when the new loan is absorbed.
Equities and Property Shares It does not seem to have dawned on Throg- morton Street that the chances of Labour win- ning the next election have vastly improved. Equity shares are still firm and edging upwards as if a Tory victory were round the corner. There is, however, good reason for the recovery in property shares, for the proposed Land Commission has not got the socialist teeth that the market feared. A 40 per cent levy on the profit made on selling land at a development price is simply equivalent to a property company paying a 40 per cent corporation tax. And the Land Commission, when at last it is set up, is not going to interfere with commercial develop- ment. One exception to the 40 per cent levy which has been allowed should prove useful for the older-established property companies. If an old office building is modernised or rebuilt the profit will be tax-free if the property had been
held as an investment This benefits such old- established companies as CITY OF LONDON REAL PROPERTY and METROPOLITAN ESTATES. I favour these two shares to yield 5.1 per cent and 4.7 per cent respectively. As a more speculative addition I would recommend CENTRAL AND DIST- RICT at 16s. to yield 6.2 per cent.
Insurance Shares
The composite insurance shares have run into fresh trouble—the hurricane Betsy, which has inflicted damage estimated at $300 million. The losses on their American underwriting may therefore be as heavy as in the year before. ROYAL, for example, 'has seen its underwriting profits halved in the first six months because its American losses far outweighed its UK and Canada improvement. Next year, when the new taxation will cut their investment income, ROYAL may find it difficult to maintain its dividends. The interim has been held at 15 per cent, but the final is in doubt. At 34s. 6d., to yield 5 per cent, the market seems to be expressing caution.
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