FINANCE AND INVESTMENT
By CUSTOS
GONE are the days when by a mere waving of the Treasury wand gilt-edged prices could be set on a rising course. In its present mood of depression the market has paid little heed to the announce- ment that on March ist next the £300,000,000 of 3 per cent. Conver- sion Loan will be paid off at par without any recourse to a conversion operation. That the Government would avail itself of its first oppor- tunity to repay this loan was widely expected, in spite of the recent set-back in gilt-edged prices. What has caused surprise, and in more favourable circumstances would undoubtedly have brought a sharp rise in the market, has been the semi-official disclosure that well over one-half of the Conversion Loan is still held outside the Government's own hands. Recent City estimates of official holdings of 3 per cent. Conversion had ranged as high as £250,000,000 and carried the implication that repayment would be a simple matter which would set up only a modest reinvestment demand. It is the more disquieting that a prospective demand for reinvestment pur- poses of something over £150,000,000 should have failed to kindle even a spark of enthusiasm.
DWINDLING GOLD RESERVE What is the explanation ? It is partly that January 1st is fast approaching, when the Government will be issuing no less than £r,000,000,000 of new Transport stock as compensation to home railway investors. The terms of this issue are being eagerly awaited, and in the meantime home railway stocks offer a convenient back door into gilt-edged at attractive discounts. So long as this position obtains I find it hard to believe that the gilt-edged market can be put on to a much higher level. Indeed, the question which naturally springs to mind is how the Government will face up to what looks like being a really heavy volume of selling of the new Transport stock as soon as the market opens. I can see no other means of creating a two-way market than making the terms sufficiently attractive to appeal to the general body of investors.' Sir Stafford Cripps is more likely than Mr. Dalton ever was to face up to these financial realities, The other influence which robbed the 3 per cent. Conversion Loan repayment of any stimulating effect on gilt-edged prices has been the official announcement of further heavy drafts on Britain's gold reserve in November. Gross sales of gold amounting to £48,000,000 and a further purchase of 6o,000,000 dollars from the International Monetary Fund last month have come as a forceful reminder that little progress has been made so far in reducing this country's adverse balance with the dollar area. The gold reserve is probably still slightly over £5oo,000,000, but not only is it the final reserve of the whole of the sterling area, but at anything like the present rate of gold losses it will be drawn down below Sir Stafford Cripps's esti- mate of Lz7o,000,000 by the end of next year. Better exports and the recently announced cuts in dollar imports are expected, of course, to stem the drain in the coming months, but a fall in long-term interest rates will not be readily accomplished against the background of heavy gold shipments.
U.K. AND ARGENTINE TRUST
An interesting consequence of the coming repayment of the '3 per cent. Conversion Loan will be the winding up of the United Kingdom and Argentine Convention Trust set up in 1933. This trust holds £5,367,o75 of 3 per cent. Conversion and with that amount of cash available on March 1st it will pay off the whole of the £2,268,685 of "B " Certificates at par on May ist, which will leave it with just over £3,00o,000 in cash and £3,342,100 of Argentine Government 4 per cent. sterling bonds. As soon as possible after May 1st the surplus cash will be applied in paying £66 per Doo on the trust's " C " Certificates, and the Argentine sterling bonds will then be distributed in specie to the " C " Certificate holders. A rough calculation shows that there should be about £59 nominal of Argentine bonds for each Doo of " C " Certificates held. At present these Certificates are .quoted in the market around £120, which may be compared with thbir ultimate break-up value next year around £125, while there is also a half-year's dividend. As a short-term holding the Certificates provide a satisfactory investment over the next few months.
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