Stock Exchange Boom – The Public and Fixed-Interest Securities – State Short-Dated Bills – Unemployment – Imports of Coal and Raw Materials – Coal Reserves for State Railways

«The Economist», 19 maggio 1928, p. 1036

Turin, May 8

The outstanding feature of the month of April was the rise in Stock Exchange prices. On the basis of 100 for December, 1925, the worst was reached, according to the Milan Chamber of Commerce index, on June 25, 1927, when the general average of 35 representative variable dividends securities was as low as 57.63. After that date progress was almost uninterrupted: 64.06 at July 29th, 67.06 at August 26th, 71.92 at September 23rd, 76.92 at October 29th, 73.15 at November 26th, 80.25 at December 31st, 82.24 at January 28, 1928. Then intervened a lull: 81.56 at February 25th, 81.01 at March 31st, followed by a big jump to 89.41 at April 28th. All groups took part in the rise. Taking the extremes for June 25, 1927, and April 28, 1928: Banking shares rose from 80.26 to 105.27, navigation and transport 60.21 to 86.41, textiles 32.49 to 52.89, minerals, iron and steel, and engineering 51.58 to 85.82, electrical 63.78 to 105.4, land and real estate 48.98 to 88.15, food and miscellaneous 65 to 105.45. For individual shares the rise was sometimes spectacular: For the Bank of Italy shares, 95.66 to 144.21; Soie de Chatillon (artificial silk), 30.07 to 63.75; Montecatini (chemical fertilisers), 62.37 to 113.90; Edison (electricity), 59.72 to 109.23; Beni Stabili (real estate, Rome), 49.38 to 105.28; Risanamento Napoli (real estate, Naples), 64.26 to 126.81; Pirelli (rubber cables, &c), 43.79 to 75.17. The volume of transactions is also increasing; whereas during last August the daily sales in all Italian bourses averaged only 2.43 per thousand of 35 existing issued securities considered, in the last week of April the average was 8.79 per thousand. It is as yet uncertain, however, if the general public is participating in the speculative bull movement. Until very recently only professional operators took interest in variable dividend securities. The general public, who at the beginning snatched the opportunity for selling frozen holdings at rising prices, was content, as the rise continued, to hold and wait. The public preference is for fixed-interest securities. There do not exist, except for State securities, general number indexes for fixed-interest-bearing securities. Bachi’s index gives 54.9 and 64.3 respectively for June, 1927, and March, 1928, extremes of State consols and redeemable bonds. But other securities have fared better; for instance, debentures of the Turin Land and Real Estate Credit Institute, which sold well under 400 in the middle of last year, today find ready buyers at 480. The renewed interest in debentures paves the way for the remaking of a market, which was somewhat spoiled by the compulsory conversion of the Treasury bills in November, 1926. It might be thought that the bad experience of investors in Treasury bills, when they found them suddenly and compulsorily converted into perpetual 5 per cent, consols, would render them shy of short-dated bills issued by the State; and this is the reason why the Finance Minister is testing the buying propensity of the public by tentative indirect issues, such as Post Office and deposit and loans State Bank’s bills. Both sell very well, proving that investors desire short-dated securities. They eagerly search after debentures; an 80-million 6 per cent, loan issued at 95 per cent, by the City of Turin was subscribed in a few hours.

The reluctance of the public to enter into variable dividend share commitments, notwithstanding the past big rise and the hope of better future quotations, is explained by the uncertain prospect for industry and trade. The stabilisation crisis is as yet not over. The number of unemployed, after having risen to a maximum of 439,211 at January 31st, was still at 413,383 at the end of February, almost the same level as the 1927 maximum (December 414,283). The subsidy days paid were in February 1,948,743, against 1,845,952 in January and 2,015,579 in December, 1927. Tons carried over the State railways on account of the public, which is a sensitive index of the economic situation, increased from January (3,940,000 tons) to March (4,658,000), but the figure for each month and for the first quarter total (12,906,000 tons in 1928 against 14,080,000 in 1927) remains below 1927. Imports of coal – exclusive of Reparations coal – in the first two months of 1928 were 1,275,910 tons, against 2,308,397 tons for the corresponding period of 1927, a big fall, partly influenced by the consequences of the British, 1926, strike. Broken iron and steel imports decreased in the same comparative period from 92,288 to 69,809 tons; pig-iron from 21,291 to 14,829 tons. But in other branches, as in textiles, things are improving; imports of jute increasing from 9,591 to 13,316 tons, of raw wool from 9,707 to 11,731 of cellulose from 20,329 to 31,661. Cotton is stationary at 45,154, against 45,798 tons.

A much-discussed question is the competition of German with British coal. Prices of British coal are at precent c.i.f. on railway cars at about the same level in shillings as in 1913 (anthracite first 34s 6d at April, 1928, against 28s 6d for the 1913 average; gas first, 22s 6d, against 24s, Cardiff first 27s 6d, against 29s 6d). Free imports are diminishing also because the State Railways are almost exclusive customers of the Azienda Nazionale Consumatori Carbone, a semi-public concern for the import of German coal. Reparation coal imports increased from 247,600 tons in January-February, 1927, to 562,355 tons in the same period of 1928. The whole of it was sold to the State railways, whose reserves from 1,960,000 tons at the end of June, 1927, appear to have gone up to 2,500,000 tons at the end of March, 1928, a figure not much below one year’s consumption. The State railways aim, apparently, at building up a reserve sufficient to carry over Italian requirements during possible strikes and other suspensions of production in coal producing countries. A fund of £ 5 millions sterling is needed for carrying out the coal deposit plan. Coal importers object that such open-air stocks are very expensive on account of atmospheric influences, fire and other losses but the only other alternative would be State subsidised private stocks. This plan was sometimes tried on a small scale in the past, but it proved unacceptable.