27 AUGUST 1948, Page 28


By CUSTOS ALTHOUGH their major problems—international political prospects and the outlook for industrial profits and dividends—are still shrouded in uncertainty, investors are being given plenty to think about in specific items of news. In Australia the High Court judgement invalidating the Government's bank nationalisation plans followed by the appeal to the Privy Council opens up a more promising prospect for the banks' shareholders. Even on take-over possibilities shareholders had probably got little to fear, but there is scope for an improvement on present market values so long as the banks remain in private ownership.

SURPRISE FROM NEW ZEALAND Nobody would have been surprised if another piece of news from Australia had taken the form of an announcement that the Australian pound was to be restored to parity with sterling. The Common- wealth's balances in London have been steadily piling up, and there have been other indications that the z5 per cent. discount represents a substantial under-valuation of Australia's currency. Some City institutions and private investors have therefore been trimming their sails for some time past on the assumption that a revision of the exchange rate could not be long delayed. To everybody's surprise news on the expected lines.has come, not from Australia, but from New Zealand. Admittedly the two problems are not dissimilar, but I should have thought that the dangers involved in an appreciation of currency were greater in the case of New Zealand than Australia.

The danger, as I see it, is that to make exports less competitive is to offer a hostage to fortune. What can happen in this field has already been demonstrated in the case of Canada and Sweden, both these countries having had cause to regret their decisions to raise the external value of their currencies. In New Zealand it is argued that the exporting community is doing well, that costs and prices are out of line with those ruling outside, especially in the dollar area, and that some counter-inflationary influence is now urgently required to preserve balance. There is force in all these contentions, but time will show whether the outcome is what is expected. Meanwhile London has raised quotations for a wide range of New Zealand securities, covering bank shares, the stocks of primary producing and merchanting companies and even gold shares. On the face of it exporters and commodity dealers, including gold producers, should suffer from an appreciation of the exchange rate, but the position is complicated in this instance by special arrangements between pro- ducers and the Government. The marking-up process has been on sober lines and there is certainly no basis for any substantial rise.


Investors in Uruguayan rail stocks will welcome the announce- ment that agreement has at last been reached between holders of the Central company's Second Debenture and Ordinary stocks. The compromise is not quite on the basis which I expected, in that the pay-off price of the Second Debentures is being raised by only Li from £85 to £86, while the take-over value of the ordinary is left unchanged at L121-. Clearly the directors took a firm line on the question of revising their original proposals which, although defeated by the second debenture holders, had the blessing of an independent panel. The concession to the second debentures is small, but it has been accepted by their spokesman. There can be no doubt, therefore, that in its revised form the scheme will go through, after which the actual payments to stockholders will await the formal ratification in Uruguay. If, as is hoped, pay-day comes by the end of the year Uruguayan rail stocks still look cheap as short-term investments. Allowing for transfer stamp and brokers' commission most of the stocks can be bought at discounts ranging between 41 and 5 per cent. on take-over prices, which means a generous tax-free return on what looks like a four months' holding. As I writ; by far the cheapest stock is Midland Uruguay 5 per cent. debenture quoted around £421 with a take-over value of L481. It may not be obtain- able so cheaply by the time these notes appear, but up to £44 it is very good value for money.