Factors affecting stock price
We all know and seen the fluctuation of stock price but how well do we know on why does it goes up and down the way it is? The foundation force on price movement of securities is derived from its supply and demand. These are the main factors affecting the supply and demand of securities as well as stock price: economic factors, industry performance, company performance and investors expectation.
Economic factors: including political environment, interest rate, inflation or deflation and business cycle.
Political environment: such as changes in policies toward business operation or any political shock such as war or protest. If the change in policy works in the business favor that would allow company to operate in a smoother way, company stock price would increase.
Interest rate: during the high interest rate period, investments that pay interest seem to be more attractive than stock buying. This happen to stock that gives return rate lower than interest rate pays on saving at bank. In this scenario, there would be less demand and more supply (some existing investors tend to put shares for sales) for that particular stock and that stock price tend to decrease.
Business cycle or Economic outlook: stock price seems to follow the spin of business cycle. When the whole economy is at boom period, stock price is generally high. In contrast, when the economy is heading downward, stock price is lower.
Inflation and deflation: under both conditions, high inflation rate or deflation, tend to move stock price downward due to lost in confidence from investors. That is the reason why every country tries to maintain their country inflation rate at a steady rising slope.
Industry performance: is looking at the industry the company is in. Certain industries sometimes become more popular than another in all the sudden. When that happens, it tends to give credit to every company under that specific industry. The opposite would happen on the other hand. For example, when there is a heavy tax increase to mining sector, every oil companies has become more expensive toward their oil productions and it decreases stock price of oil companies in general.
Company performance: any internal control from the company itself will affect their stock price. Those internal factors include: a change of management, news, merger or acquisition etc.
News: news from the company or any news related to the company such as announcement of new launching (of anything), release of financial report, Scandal or fraud of management team will deliver certain reactions to investors.
A change of management: for example a change of board of directors can also affect stock price because some portion of investors may like or dislike the change so they will act upon the change by selling out or buy in the company share. If the power of willing to sell is more than willing to buy, meaning there will be more supply and less in demand then price of that stock is likely to drop as well. A change of management can also include things like takeover or merger position announcement or the change in planning of the next few years plan.
Investors expectation: every investors out there has their own personal belief and is likely to get different sources of information. Meaning, some will speculate that stock price will go up and some will speculate and believe that stock price will go down under their own reason. We can refers to investors who believe that stock price will go up take the bull part and investors who believe that stock price will go down takes the bear part. When the bull force is stronger than the bear, stock price would increase. When the bears force is stronger than the bull, stock price would decrease. It simply means when investors think that stock price will increase, they would start buying more shares and that it would increase the demand for particular stock therefore the stock price tend to increase.
Under stock market in Cambodia at the moment, despite having economy in expansion also good industry performance and listed company performing well, it is seemed to be lacking in investor confidence over stock price rising. Meaning, not many players enter in the market and thus the aggregated demand and aggregated supply slope line is considered to be gentle and not very steep. Due to this reason, even though Cambodia Securities Exchange allows a price movement in a range of 10%, stock price have not been much fluctuated.
In summary, stock price is said to be affected by economic factors, industry performance, company performance and investors expectation.