The digital age that we live in has made the world more interconnected than ever. In financial markets there is a common saying that news and sentiments follow the sun. The sun rises in Tokyo first among all the global financial capitals. And sentiments travel from Tokyo to Beijing to Delhi to Dubai to Amsterdam to London to New York. The news and sentiment create a web of influence all around on the way.
We can delight in calling the market crazy. But pundits will say that even though sentiments can make the market look crazy sometimes there are definite factors that affect the market’s trajectory. We discuss only a few of them in this article –
- Government and its policies: This is probably the most important factor that affects local markets. And if big economies are involved then they can impact global markets. News of an impending US recession can send even the Islamabad market into a tizzy. Any news about the Chinese Yuan can similarly impact other near and far markets. Policy changes can deeply impact market movements. When G-20 steps forward to introduce market stimulus – it positively impacts almost global markets.
- Market Sentiments: This is not something which is entirely qualitative. Even a few years back market sentiments were thought to be inherently whimsical. It was assumed by investors that they yield very little control on market sentiments. But in today’s mature markets we have Sentiment Indicators. It shows how a group feels that the market will behave. A Sentiment Indicator quantifies how various factors like inflation, unemployment, public policies, politics etc will influence future behavior at any moment of time. Study of these indicators along with market analyses tools like fundamental and technical analyses can create negative or positive expectations. These expectations when publicized create a bias or sentiment. So these are not some random conclusions but outcome of well informed evaluation.
- International and Domestic Issues: Very recently we saw what a threat of Syrian war did to the markets in Asia, Middle East, Europe and Americas. Oil prices swung upwards and equities downward. War, large scale corporate fraud, political unrest, acts of terrorism (specially in financial capitals), public fear for any reason, oil and energy prices, US federal interest rates, introduction or withdrawal of market stimulus, international trade, unemployment, supply and demand issues and other similar factors can affect market prices to various degrees. In times to come international issues will exert a greater impact on local markets.