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Factors affecting share price on the market
The price of listed shares on the JSE fluctuates every now and then. The price for shares goes up and down owing to a number of factors happening from individual business units (i.e. listed company) through to a complex environment of the entire economic system.
No economic activity operates in a vacuum. In our boundless, inter-connected world, the smallest tremor can detonate an earthquake, the spark can ignite a wild fire, lack or too much of rain, increase or decrease of interest rates. Markets react promptly and uncharacteristically to rumours of war, change in regulatory environment (business), political climate seen as negative by the business (investing) community, and vagaries of El Nino, interest rate variation to general performance of the economy. The share prices on the JSE are affected either positively or negatively by a number of factors occurring within and without the economic system.
The influence from within the country is generally categorised as domestic factors. Those that are impacting on the business and investment from outside the country are defined as global factors. Thus, before buying or selling shares one should first ascertain both global and domestic factors which may be influencing the market, and establish a good timing of buying or selling ones shares. Traditionally, share prices are higher when country’s economy is doing stronger and lower when the country experiences poor economic performance.
Interest rates play a major role in determining stock market trends. Bull markets (those in an upward market) are usually associated with low interest rates, and bear markets (those in a downward trend) with high interest rates. Interest rates are determined by the demand for capital – pushes them up and normally indicates that the economy is thriving and that shares probably expensive. Low interest indicate low demand for capital, thus liquidity builds up on the economy, driving share price down.
Company profits are very much an issue in share investment. Companies doing well in their business activities are likely to attract more investors, thereby resulting in high demand of their shares. Entities which are not doing well business wise may result in investors selling their shares on the market. Selling en masse will result in more shares flooding the market and consequently bringing the price down – an abundance of a commodity leads to price decline.
A political development – inside or outside the country - may have bearing on share price. Usually this factor cut across all the shares on the market, in other words it is factor that impacts on all the shares irrespective of the sector classification. The political factor is visible through regulatory processes and its influence (not specific) in share price becomes the eventuality.
Perception factors have their own fair share of contribution to share price fluctuation. The fact that South Africa is classified as developing economy, it means that general perceptions towards developing economies will impact on local share prices as well.
Whichever way the wind blows, prices can rise quickly as they fall, confounding the best plans of some industries while rescuing others from the brink of disaster. These random forces – “the Great Unknowns” –combine with the everyday laws of supply and demand, and the cyclical nature of business itself, to shape the peaks and valleys of a dynamically shifting market. An investor may not be able to predict these forces, but analyzing and understanding them, one will be better equipped to weather the lows as you wait for the tide of fortune to turn. It has to borne in mind that the above are, by no means, only the factors that can influence share price movement on the exchange.
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