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I'm Trying to Understand Stock Market Performance

Business World Online
 
The stock market is something that people tend to dismiss as a "scam" (which it isn't) or that people think it's better to get a financial manager. In my case, I prefer to get a managed fund (at times) especially with the rule, "Invest in stocks only money that you don't need for now." Money needs to be set aside for stocks. In my case, I've been paying PHP 3,000.02 every month ever since I bought the AXA Chinese Tycoon Fund which invests in blue-chip stocks and has a premium charge to be used for insurance. Basically, I'm just letting it roll for some time though I also want to do personal investments. Though, it might be a better idea to get a fund manager or plan first how much to invest. Careless players can end up in a suicidal mode like borrowing PHP 1 Million then carelessly buying stocks and losing the money. The volatility is always something to consider.

Stock markets are affected by one rule--supply and demand. Supply and demand can be affected by many factors. I decided to read through Get Smarter About Money which helps me think that I could understand stocks before I decide to do some minor investing myself. Otherwise, I still prefer to play it safe since I'm somehow overly impulsive and too aggressive which landed me in a bad scam several years ago. Now, I'm trying to self-study basic stocks even if I don't intend to become a legend. It's important to learn new stuff even if I'm not getting any younger. 

Company news and performance 

The company in itself builds the public factor. It's pretty much how a company's public perception can affect supply and demand. A positive public perception will drive up demand which causes the stocks to have an increase. Meanwhile, a negative public perception will drive down demand. Stuff like news on earnings, dividends, product development (introduction and recall), securing a new large contract, anticipated takeover or merger, management changes, and accounting errors are but a few.

Let's say that a company has good performance but one of its owners' children got involved in a public scandal. That would actually start to drive the price down because of the public perception. However, the company still manages to deliver good products so the prices may still go up eventually despite the scandal.

Another might be how a company starts to get a higher value. I might want to talk about one of my favorite food ventures is Jollibee Foods Corporation. Jollibee Foods Corporation isn't only running its burgers as it also owns Mang Inasal, Red Ribbon, Chowking, Greenwich, and Manong Pepe's. Granted, Jollibee is now a worldwide franchise like McDonald's so the stock value will naturally go up. Some experienced stock traders buy high and sell higher. Jollibee gets into the stock market to finance its operations. 

People can be buying growth stocks which will be used for trading. Dividend stocks are used for those who want to have some dividends. New issues are those that are on the Initial Public Offerings (IPOs). Defensive stocks are based on consumer staples that can outperform during a bust and underperform during a boom. Buying these could depend a lot on company news and performance. 

Investor sentiments

Another thing worth noting is how investors feel towards the company. Everything can go back to company news and performance. Obviously, investors wouldn't want to immediately invest if a company got involved in bad publicity. Would you want to invest in a company when you realize that one of the directors' children was involved in a bad scandal that landed him or her in jail? I definitely wouldn't feel too good. However, it could be a market timing when one buys these stocks when the prices drive down due to low demand.

Now, these are the types of sentiments to watch out for:

bull market – a strong stock market where stock prices are rising and investor confidence is growing. It’s often tied to economic recovery or an economic boom, as well as investor optimism.
bear market
 – a weak market where stock prices are falling and investor confidence is fading. It often happens when an economy is in recession and unemployment is high, with rising prices.

I think about the Stock Market Crash of 1929. Maybe, I could talk about the recent Ukraine War could drive down prices as people may panic sell, or be in fear to invest money. The discovery of a new oil supply can mean prices of oil will go down--resulting in the stocks related to oil going down during a boom. If a new gasoline supply will be found during this crisis--I can expect a rollback. Though, right now, the prices of gasoline are high due to the supply getting affected by the recent Russia-Ukraine War. This is where circumstances can affect investor sentiments. Both these situations belong to the bear market.

We can talk about the stock market performances under the late Benigno Simeon Cojuangco Aquino. Certain industries were helped when he liberated certain sectors for manufacturing gas, steam, and air-conditioning supply, finance and insurance, transportation and storage, and professional, scientific and technical activities. President Rodrigo R. Duterte signed the amending of the Public Service Act to improve it. Chances are the stock value of certain companies may have been driven down for buying when the prices of certain commodities and services go low. It's because there's a huge supply of a certain type of stock. However, these prices may soon increase when an economic boom happens. When businesses expand, incomes increase, then there's the chance that the sales of stock will be lessened when the demand will eventually increase.

Industry performance

Doing an industry study is very important. Knowing which industries are doing better or worse can help in getting to know which stocks are best to buy. It would be smart to know which industries are currently doing better or doing worse. It would also help to link which company will have the best value for stocks and which wouldn't be based on industry.

For example, I think I want to buy stocks mostly from the food industry they are based on basic commodities. However, I may also want to invest in stocks based on SM Prime Holdings. The managed funds would be very focused on which industry is doing good and where to invest. Stock buyers may want to buy stocks at a higher price because of long-term investment which is held for as long as possible before selling. It's with the buy high and then selling the stocks higher for some experienced people. Some would buy stocks to hold on for as long as possible for long-term investment. 

Economic factors

We just can't neglect economic factors now, can we? The factors revealed are based on interest rates, economic outlook, inflation, deflation, economic and political shocks, economic policy changes, and the value of the local currency. 

Interest rates must adjust depending on the times. High interest rates can be good at times. However, an unusually high interest rate can affect the loans. Would you want to borrow money from the five-six? I wouldn't advise on that because you are paying PHP 6.00.00 or every PHP 5.00 you borrow. It's a very unjust interest rate. I think Russia isn't doing itself by raising the interest rates too high. Interest rates might be raised or lowered depending if there are too few or too many loans. It would be all about striking a balance to make sure that the stock market is balanced. Higher costs and fewer businesses will discourage investments which will also affect revenues. So, raising interests is dependent on what good we want to achieve. We may want to raise interest rates at a reasonable rate to encourage investing. However, it may be time to lower interest rates when there are too few businesses and loans are needed to finance them. It's a case-to-case basis such as what goes up must go down. 

The current economic performance can be another. The economic boom during Aquino's term would have raised the stock prices. However, COVID-19 hitting during Duterte's term would soon start to lower prices for a certain period. The economy was greatly affected by COVID-19 due to a lack of activity. Both periods have had their ups and downs. Right now, it seems that Duterte's signing of the Public Services Act will be one step toward better economic performance. Regardless whoever will win as president must take extra care to make sure that whatever sectors remain liberated will be liberated. The only thing that I don't want to encourage is the buying of land for foreigners even if they can keep 100% of their net profits after taxes. The growth of the local industries may also follow with the influx of multinational corporations (MNCs).

Both inflation and deflation are due to supply and demand. Inflation is when prices are increasing. The current oil price hike is caused by world events and not by presidents. The increase in the prices of goods may mean higher interest rates. Higher interest rates may affect stock performance. Commodity stocks may end up having better value due to their higher prices such as defensive stocks. Meanwhile, commodity stocks may end up having lower value during a deflation since the prices got lower. As mentioned earlier, if any new supply of oil is discovered or released, it can lead to deflation. Deflation may also be the time when people start to sell their stocks at a loss and move to bonds. However, deflation might be a good time to buy some stocks at a lower price for capital appreciation later. Panic selling is definitely not a good thing except in a life or death situation.

Changes in economic policy can affect stocks. There will be new policies that will be good for business and not good for business. Sometimes, we need deflationary periods to encourage the buying of defensive stocks and dividend-yield stocks. Sometimes, we need inflationary periods when supply is getting low and demand is too high. What's mentioned earlier can be linked to government policies. It's very important that the government also has the economy in mind. Great economic leaders like the late Lee Kuan Yew and the late Deng Xiaoping must be followed to a certain extent. The Philippines should follow such models to make sure we can get a better status beyond the rising tiger.

Lastly, it would be important to know the value of the local currency. The rise of the Philippine currency will encourage people located in the Philippines to buy locally. A foreign investor (earning in pesos) will be interested in buying local raw materials even more if the strength of the Philippine peso is rather up. However, the Philippine peso when it devalues will lead other sources to buy our products causing stock prices to rise. It would be attracting foreign buyers who aren't stationed in the Philippines to ship out Philippine products (exports). 

References

"4 types of stocks everyone needs to own" by Andrew Main (May 4, 2016)

"Duterte signs law amending Public Service Act" by Azer Parrocha (March 21, 2022) 

"Factors that can affect stock prices"

"The legacy of Philippines President Benigno Aquino" by Laura Southgate (August 25, 2015)

"What Happens When The Fed Raises Interest Rates?" by Brian O'Connell,  Benjamin Curry (Updated: March 16, 2022)

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