Economic Outlook

ON the same day (December 2t that ended a week of active trading on Sydney Stock Exchange and sent the share price index for Ordinaries to 306.08. its highest this year, the Bank of New South Wales in its quarterly economic review sounded a warning on the invest ment boom.

The bank uncompromisingly said: “In many respects share prices have gone absurdly out of perspective, and show many signs of a dangerous degree of speculative fever. Whether the dynamic of the boom is an optimistic hope of capital appreciation or a cautious hedge against future inflation, it has moved to the limit which disclosed earning power can support, and predicates a degree of physical expansion in the economy which, in the immediate future at any rate, would be difficult to forsee.”

While students of the market generally accept the fact that the state of the mar ket is high and the bank’s view is a valuable one for investors to consider, they do not altogether agree that it is too high. Not only in Australia, but also in USA and Britain is the stock market enjoying a prosperous period. Ex perts in those countries, too, have been chewing their scrip and trying to decide whether the present share market will prove to be as unstable as the boom period of 1951 and be the forerunner of a steep slide in share values.

Overseas, one stabilising factor appears to be the confidence engendered by the general prosperity of the Western World.

Here in Australia, the economy is operat ing under the stimulus of prospects of higher export receipts and a rise in the value of rural production. The continued interest of overseas capital in Australian industrial growth has helped also. In flow of British capital has been substantial in recent years—one reason being that the London market has risen to a point which still leaves Australian equities a cheaper buy for the UK investor, after allowing for tax relief under the Double Tax Agree ment.

The Commonwealth Government’s view of the economic situation is indicated by two precautionary moves during the month —a further relaxation in import controls and in discrimination against dollar goods, and the call-up to the “Special Account’’ of some £ 35-million from the trading banks to reduce the large holdings of liquid assets that the banks had accumu lated. , ... One important point, compared with the 1951 boom, is that yields today are broadly higher and today’s market has been established not by a short, hectic period of trading but only after a long period of selective buying.

All in all, predict the experts, even if share prices do level out in 1960, there will be no panic.