Business: The Other Bull Market

“We thought it wouldn’t happen here.” groaned a Swiss banker last week. ”But the whole world seems to be caught by a frenzy of speculation. If this goes on. something serious is bound to happen pretty soon.” On Zurich’s conservative and cosmopolitan Effektenborse. stock prices moved sharply up and down. Alpine fashion, and many an unsavvy investor plunged in with gusto. “For the first time.” said another stiff-lipped Zurich banker, “our market is pulling in the barbers, the bakers and the waiters.”

Trouble was that the barbers and bakers were fair game for tipsters and touters. When rumors went around that the Italo-Suisse company planned to build a pipeline from Genoa to Switzerland, its shares zipped from $138 to $229 in a few days. Last week they worried off to $176. Last fortnight the most aggressive tipster service. I.F.A.S.. rode up the stock of Motor Colombus by 10% in a single day simply by reporting—with no fact or explanation—that it would jump sensationally. Last week the stock lost half its 10% gain, and at least one other hard-touted stock. Columbus Electronic, dropped to less than half the price at which I.F.A.S. recently recommended it as a good buy.

Swiss bankers publicly condemn such tipsters. Privately, the bankers contribute to the profitable buying fever. They commonly margin buyers at 30% to 40% or even less (the rigid U.S. margin rate: 90%). Their standard excuse for such easy terms is that all but a few listed European companies are so solidly rooted that a bust is unthinkable.

Popular Sport. Most European stocks do look so attractive that throughout the Continent brokerage houses are becoming as popular as coffee houses. In France, where the De Gaulle government recently liberalized imports and devalued the franc to the free-market rate, the general stock index has jumped 24% in 1959. In West

Germany, which recently cut corporate taxes on dividends from 30% to 15%, the index of average share prices vaulted from $45.24 on last Dec. 30 to $59.29 last week. In Britain, where the bull started putting on meat after the Conservative government lifted restrictions on consumer credit, the stock index piled record upon record all last week, closed 56% above the low of February 1958.

Helping the bull markets is the fact that governments publicly encourage share ownership by the little man. The West German government has begun to sell shares of state-held companies to middle-class investors in a bold step toward denationalization (TiME. April 13). But markets are so thin that a little buying can send a stock to giddy heights. Four-fifths of West German corporate stock, for example, are locked in institutional portfolios. Companies are reluctant to float more because of heavy taxes. Daimler-Benz has 93% of its stock in the hands of institutions and other companies; in the past month, buyers of small amounts of floating stock propelled the price from $243 to $363 within ten days.

Yankee Invasion. U.S. investments in Old World stocks have soared since the recent currency liberalization made it easier to repatriate profits in dollars. Heavy U.S. buying in May provided the punch that lifted such stocks as the Anglo-Dutch Unilever from $143 to $153, The Netherlands’ Philips’ Lamps from $158 to $176, West Germany’s AEG (electrical equipment) from $83 to $91. and Bayer (chemicals) from $93 to $105. One reason for particular U.S. interest in Germany: if a foreign investor holds his West German stock for more than three months, he pays no taxes, thus can use his full long-term profits for further investment.

Some European brokers grumble that the invasion of Yankee shareholders is pushing prices dangerously high. A few major Swiss manufacturers, notably Nestle and Aluminium Industrie A.G.. have attempted to stem the foreign tide by registering their shares so that the company can accept or reject bids to buy. But the broad majority of European capitalists heartily hold out hands in welcome to the U.S. investor. “The more investment the better,” says a top Zurich financier. “We in the West are politically and economically in the same boat. The closer we are connected, the stronger we shall be.”