FINANCE-PUBLIC & PRIVATE.
[By OUR CITY EDITOR.]
STOCK EXCHANGE TENDENCIES.
[To the Editor of the SPECTATOR.] SIR,—As anticipated, the Stock Exchange is already giving signs of healthier conditions as the result of the liquidation following the higher Bank Rate. It has been a trying week as regards foreign politics, but despite extreme anxiety engendered by the evident tension between France and ourselves arising out of the Ruhr crisis, prices of leading securities are for the most part slightly better than when I wrote a week ago. All the same, general business, as might be expected in view of the approaching height of the holiday season, has now become restricted in most departments, and it would not be surprising if stagnation were to be the chief feature of markets for the next few weeks.
At the same time, there are not wanting indications of a continuation of the abundance of the resources awaiting investment. This has been a good feature of the situation for some months past and it continues. For the moment, the public fancy tends in the direction of sufficiently sound securities yielding 5i per cent. or upwards, and it is indicative, both of this appetite on the part of the investor and also of the high credit enjoyed here by Japan, that notwithstanding all the anxieties concerning foreign politics reports should be current at the moment of writing of a Loan of about £4,000,000 for the South Manchurian Railway, with principal and interest guaran- teed by the Japanese Government. It is a very long time now since Japan, either directly or indirectly, borrowed in this market. On the contrary, it has been rather a case of a steady liquidation of all forms of her external debt, while just as Japan rendered us such good services as an Ally during the War with her Navy, so she was actually able to make some return for the financial assistance we had rendered to her many years previously (during her war with Russia) by lending to the British Government large sums in dollar credits which she happened to have in New York at a moment when they were greatly needed by this country. Unless the financial atmosphere should be affected by serious political developments I should expect this South Manchurian loan to be largely applied for. It is, I believe, to be issued on terms yielding to the investor about 51 per cent. exclusive of profit on redemption, or nearly 6 per cent. allowing for redemption. I have made this special reference to the South Manchurian Railway loan because if I am right in thinking that its success is assured I fancy that the operation can also be regarded as indicative of the trend of the require- ments of the investor at the present time. Some few weeks ago there was a good deal of talk about British Funds and kindred securities getting very rapidly on to a 4 per cent, basis, but whatever may be the ultimate course of price movements in that direction these con- fident predictions seemed at the time to leave out of sight one or two important considerations. One of them was the likelihood of money rates hardening, and that likeli- hood has, of course, already become a certainty. Again, notwithstanding the recent reduction in the Income-tax, that tax and the cost of living are still sufficiently high to make it imperative that the Rentier class should be getting a higher yield on their investments than 4 per cent. Finally, " the 4 per cent. argument " seemed also to leave out of consideration the very large demands for capital all over the world, demands, moreover, which are likely to increase rather than diminish when the Ruhr crisis has been surmounted and there is real peace in Europe, followed by a practical handling of the problem of the Reparation payments. That is why a good many at the present time are disposed to anticipate that when activity is resumed in the Stock markets after the holidays it is to the better class of Foreign Government stocks and the prior charge issues of sound industrial concerns that attention will be given. Not that there is any disposition to anticipate a sharp reaction in gilt-edged securities, but the market for those securities will now have to depend more than formerly upon genuine investment buying as distinct from speculative operations on borrowed money. It is just because some weeks ago shrewd observers discerned signs of these impending changes in the current of markets that realizations were effected, and those who had secured profits stood aside awaiting developments such as those which have actually occurred during the past few weeks. Even now I should describe the attitude of the more important financial interests as one of considerable caution. Quite apart from what may be termed political anxieties, it must be remembered that simply from the financial and economic standpoint the crisis may easily have an important bearing upon the trend of future events. A settlement of Reparations and peace in Europe might occasion a trade revival with all its influences upon monetary and Stock Exchange conditions. On the other hand, the prospect of a continuance of uncertainty and unrest might invoke forces of an entirely different character. For the moment, therefore, there is a decided inclination to " wait and see."—I am, Sir, yours
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