Reshaping the Markets

5 Factors Reshaping the Markets

The investing landscape has changed since the pandemic. Market movements have been affected by economic, political and technological factors in the past 4 years. Looking at the historical data, we have seen that uptrends, downtrends and sideways cycle are all part of the market? movements, hence, giving us indicators on how we can position our investments effectively and with risk management approach.

Here are 5 aspects that can help us gain an overarching understanding of the market trends.

1.???? Globalization – the global economies and the different relationships of nations can affect the movements of the stock market. We have seen that geo-political tensions can somehow trigger some changes in terms of corporate decisions, focus and developments. For example, supply-chains can be disrupted by tensions between specific countries. On the other hand, if better relationships are forged, foreign investors will be confident in allocating more resources in developing countries. In the South East Asia, countries are developing and may be attract Western investors to add capital and grow the businesses with strong growth plans/initiatives.

2.???? Government – the fiscal and monetary policies in a certain country together with the central bank will affect the trend of a market. Fiscal policy refers to the use of government spending and tax policies to influence economic conditions. During recession for example, a government may lower tax rates or increase spending to spur economic activity. The monetary policy is used by the central bank to control overall money supply and promote economic growth. In the US, the Federal Reserve (Fed) uses three strategies: Reserve requirements, discount rate and open market operations.

3.???? International Transactions – there are many factors nowadays that boosted international transactions. The technology of transferring and receiving money has been possible in the past decade because of the advancement of the capabilities of banks, financial institutions may it be a traditional or start-up companies. If a country is exporting a lot of goods for example, may it be physical or services, it will bring money continually to their country. The money can be reinvested and stimulate financial markets.

4.???? Speculations – speculations are part of the influences in terms of the trends in the financial markets. Consumers, politicians and investors have various perspectives and views of what will happen in the economy in the future and what are their decisions in the present. A tool called the sentiment indicator was designed to represent how a certain group of people feels about a market or economy. These are market psychology-based indicators to quantify the sentiment in the form of figures. For example, the sentiment indicator can be used by investors to see how pessimistic or optimistic people are about the current economic conditions.

5.???? Supply and Demand – the law of supply and demand combines with economic principles that describe how the movements in the price of a resource, commodity, or product affect its supply and demand. Supply rises while demand declines as the price increases. If we understand the specific supply and demand in a specific company that we are investing in, we will understand the fundamental aspects of the company if it will grow or not for a particular period of time.

There are a lot of factors that can affect the trends and movements in the financial markets. These 5 factors that I’ve shared are just a portion of the many basis that we can use for analysis. May it be an uptrend, downtrend or sideways movement in the market, we need to always have our fundamentals, technical and series of analysis to ensure proper risk management elements are in place and maximize the profitability that we will achieve.

Anchoring all our decisions with our goals, risk appetite and platforms are crucial so we can have a unique understanding of every opportunity that we are taking in. In each investment decision, we should not just decide based on what is famous or what has been cascaded in the different social media platforms but it should be a combination of our principles, skills and knowledge. Make sure to consult a professional first before investing in the financial markets. The last quarter of 2024 is a good timing to check our portfolio allocation and prepare for 2025 investment opportunities.

Karlo Biglang-awa is a Registered Financial Planner in the Philippines. He is passionate on educating Filipinos about money management and investing. Subscribe to this newsletter for more relevant personal finance & investing insights.