THE MARKET Fat wallets bid prices up

Press, 15 February 1986, Page 22

THE MARKET Fat wallets bid prices up

By

ADRIAN BROKKING

The New Zealand share market had an exciting week, triggered by corporate activity, that gave investors some $75 million to play with. Needless to say this stimulated the bidding and upped the ante for many sought-after shares, with the result that prices rose almost 3 per cent in the first two days of the week and that Barclays index of industrial shares shot through the 2000mark to an all-time high of 2020.79. More than 41 million shares changed hands during the week, and some large parcels were traded. More than three million Carter Holt shares were crossed yesterday, and 1.7 million Fletcher Challenge shares, in addition to the 600,000 shares on Thursday. Also on Thursday one million plus shares changed hands in New Zealand Steel and Waitako Stud. After the first two days profit takers moved in and brought the index down to 1997.38, but this, and news of rising interest rates and a steadying dollar could not beat the fat cheque books waiting to gobble up any available

stocks. This market will not be easily scared.

It seems churlish to observe once again that the corporate activity stirs the cash around and drives up prices so that the market is pulling itself up by its own bootstraps without necessarily doing much for the economy. In any case it is useless — try to tell a man on a winning streak at the roulette table by doubling up on red that his ploy is not likely to remain a success indefinitely!

Who can blame investors for taking advantage of the game as long as it is played by the rules.

However, a new float will give investors a chance to invest in a new enterprise that should benefit the economy as well as benefit themselves by providing income and capital gain. Cashmere Pacific, Ltd, is seeking $3 million to establish a cashmereproducing goat breeding company. Although a number of goat-breeding special parterships has been formed in the last year, Cashmere Pacific is only the second public listed company breeding goats. The other one is Angora

Corporation. Let it be said at once that Angora goats and cashmere-producing goats are different animals. Augora goats produce mohair selling around $2O a kg. Cashmere goats produce cashmere wool which sells at $l7O a kg; however, a good doe produces only 200 g of this expensive stuff. There is a long-estab-lished and historically stable market for cashmere fibre, which is likely to grow as the traditional suppliers — China, Mongolia, Iran, and Afghanistan — are not able tb keep pace with the increasing world demand. The Australian subsidiary of the world’s largest buyer, Dawson International, Ltd, of Scotland, is looking for 1000 tonnes of cashmere a year from Australia and New Zealand as soon as possible. At present this region produces about 30 tonnes. There is obviously room for growth. International cashmere processors believe that New Zealand could farm 14 million cashmere producing goats 30 years from now, producing 2800 tonnes of the fibre to earn $560 million in overseas funds. At present the New Zealand farmed herd stands at about 240,000, with an estimated 400,000 feral goats. Cashmere Pacific is renting a 942 ha scrubby

hill farm, Long Gully only 15 minutes away from Wellington’s centre. This farm was in the news some years ago because of allegations of preferential and improper lending by a semi-Govemment agency.

However, the Cashmere Pacific directors say that the new company has absolutely no connection with the owners of the property other than the landlord-tenant relationship, with the landlord disappointed at the size of the rental.

Recently stock and station agents were spreading the word that prices of goats would rise “because there was a large institutional buyer coming into the market. It is a measure of the astuteness of the Cashmere Pacific directors that by then they had already purchased the bulk of the stock needed, as trustees for the company to be formed, by means of bridging finance of $1,250,000 for three months.

The directors project a dividend of 4c a 50c share for the 16 months to June 30, 1987, and in the next year earnings of 34c a share and a dividend of 9c a share.

Another interesting newcomer to the New Zealand sharemarket is an Adelaide-based investment company, Argo Investments, Ltd. Argo is a traditional

investment company like Leyland Investments, not one of the new breed of entrepreneurial companies these days often referred to as investment companies. The company is listing here to allow New Zealand superannuation schemes to invest in the company and to attract local investors who want to invest in an Australian equity trust type company. Argo’s principle is that portfolio diversification reduces risk and that professional management can maximise returns. Its policy is not to be tempted by spectacular short-term gains from high-risk investments. ; Argo’s formula has been quite successful: its return has averaged 26.8 per cent over the last 10 years. An investment of sAust!ooo in 1975 would now be worth sAustl 3,300 if all dividends and proceeds had been re-in-vested. This beats the sharemarket by a factor of 2.4, and outperforms the rate of inflation 5.4 times. ; Argo should be an attractive investment for those investors who want some interest in Australian shares without the bother of keeping up with the Australian market; through , its spread over Australian companies with extensive overseas interest it also provides international exposure.