Bears on the Bourse

Western Europe at midyear is a sight to behold--especially through the eyes of the businessman. In the seventh straight year of boom, the Common Market is producing 11% more steel and 10% more autos than last year. Clamoring consumers have created shortages of such an everyday product as beefsteak. Almost everyone seems to be earning more and spending more than ever before. By most measures, Europe continues to expand faster than the U.S.

But one thing seems strange: while business snorts bullishly, Europe's stock markets are bearish. At the same time that the U.S. market set an alltime high last week, with the Dow-Jones industrials closing at 830.99, Europe's markets were in the doldrums. More and more businessmen found themselves in the position of France's Arnaud de Vogue, president of the St. Gobain glassmaking giant, who reported that profits are up 45% for the year but that the company's stock has dropped 12.5% in the past eight months.

Political Fears. Since Jan. 1, the Zurich market has plunged more than 10%, the Paris Bourse 20%, the Milan Borsa 35%. West German stocks have dropped 10% in the last ten weeks. Why the decline? In many cases, investors have paid less heed to the bright business picture than to present or prospective problems in politics. Italy's stocks have fallen steadily since the government nationalized electric utilities two years ago. In Britain, fears of nationalization moves in the event of a Labor victory have depressed steel shares. New tax laws have also chipped at stocks. Belgium is now taxing all dividends, and West Germany has frightened many investors by proposing a 25% capital gains tax on stock sales by foreigners.

Another depressant is Europe's inflation, and government measures to curb it. De Gaulle's "Stabilization Plan" froze prices but not labor costs, thus pinched profits and further reduced industry's short supplies of expansion capital. In Italy the government has tightened credit to slow Europe's worst inflation. Says Fiat Vice Chairman Giovanni Agnelli: "There's such a shortage of investment capital now that many industrialists are selling shares at any price to get money."

Mutual Suspicion. Buyers are few, for European businessmen still have a royalist attitude toward broad public ownership by modest investors. A few Swiss chemical shares sell for $10,000 apiece, and no effort is made to split them to widen ownership. Hoping to keep out of the public eye, Belgium's biggest producers of chemicals, matches, beer and sugar do not even list their shares on the Brussels Bourse. The tra dition of secrecy is stronger than the desire to attract mattress money; European companies commonly report only the skimpiest information about profits or forthcoming products. The suspicion is mutual. Many newcomers to Europe's almost affluent middle class prefer to put their money into tangible goods and real estate instead of stock certificates.Only one out of 40 Europeans owns common stock, compared with one in ten in the U.S.

The stock slump makes it difficult for European businessmen to raise cash by floating new issues. But except for the worried Italians, most business leaders do not think that the market situation will slow Europe's economy by much. More than a few welcome at least some decline from what they had thought were previously inflated prices.

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