Home Business Insights & Advice What factors are affecting investment value and share prices in our social economic climate?

What factors are affecting investment value and share prices in our social economic climate?

by John Saunders
13th Dec 21 11:30 am

The social-economic climate is a great influence on the investment value and can change things around. Economic factors are big contributors to the increase and decrease in the investment value and share price. Using the changes in the economic factors, experts can predict the trends of the investment market. These predictions may be true or they could be false. However, the likeliness of them being true is far greater. Experts can make educated guesses about the changes after deeply studying the economic factors. Let’s take a look at the factors that affect the share price.

Interest rates

The biggest economic factor that influences investment value is the interest rate. If the interest rate is higher, investors will have to buy more expensive loans. This might discourage them to invest the amount they originally planned or they might not invest anything at all. With the decrease in the number of investors comes the decrease in investment value. Since there is a lack of demand for investments, the value goes down. With the decrease in value, the already suffering economy plummets, and companies end up reducing their profit margins.

If there is an interest cut, the investment value will increase significantly as more and more people will want to invest in stocks.

Inflation

Inflation or deflation, for that matter, can cause an increase in price pressure. This means that the price pressure on the stock market can result in things being more expensive. When the prices increase significantly, the buying power of investors takes a toll. This means that the companies will suffer consequences where they will start to hoard their money, which can lead to greater issues. While inflation is considered a problem, deflation is also an equally important contributor in affecting investment value share prices.

If the prices decrease, the buying power will definitely increase but it is not always good. According to experts, deflation is an early sign of economic unrest that may follow. Keeping this in mind, experts explain that a little inflation can actually help improve share values. Companies often take advantage of the interest rate and keep the inflation within accepted rates.

Gross domestic product

The Gross Domestic Product is a measure of economic activity calculated using the monetary value of the goods and services a country can give out within a year. A country’s GDP also has a massive influence on the stock market. If the GDP is high, it is a clear indicator that the economy is doing well. If the economy is doing well, the stock prices will increase significantly. Good stocks automatically translate to higher investment. This is a cyclic reaction where both things are interdependent.

Unemployment

If you want to look at the signs of a depreciating stock value, unemployment is a very clear indicator that the stocks are lagging. When the economy is not operating in the best way it can, the levels of unemployment rise significantly. If there is a change in economic activity, the employment rate can further drop, which is detrimental to the stock market. The concept is also closely linked with confidence in the economy. If the unemployment rate is high, the investors will lose faith in the economy and will be hesitant to invest, causing the investment value to come down.

Trade laws and conflicts

Conflicts in trade are much too common. Countries often come up with restrictive laws and taxes that discourage trade and shake the share price of different investment options. If companies have to pay a higher tax on the things they import, it is obvious that they are not going to pay the difference out of their pockets and will increase the sale price.  This is where it all falls into the cycle of low buying power and a stagnant economy. Any changes in the trade rules can cause massive differences in the countries’ economies.

Natural calamities

We all know how Covid’19 has caused large-scale changes in the world economy. While many industries have suffered greatly, some have reaped incredible benefits. For instance, the Oxford Biomedica share price has increased significantly as Covid vaccination is the need of the moment. It increased its revenue from 64.1 to 173.4 m. This is a massive increase and will increase for years to come. This is how natural calamities can affect the share price for different stocks. While the stocks for the vaccination increased, some may have plummeted due to the pandemic.

Liquidity

Liquidity is the measurement of how investors are attracted to exclusive stock. Big companies usually have a liquidated stock as they are highly transacted. They are usually high on the investor’s list, and they ensure that they get the first opportunity to invest. The attention a company gets also translates into the value of its share price.

Market sentiment

Understanding the psychology of investors is probably the most challenging part of this. It is highly subjective as you can never tell for sure what the investor is thinking and whether or not they will come through with the investment. The market sentiment is volatile which leaves both investors and shareholders in difficult positions. While some stocks like that of IQE share price have a steady growth with declines and upgrades, there are some who see rapid changes.

Final words

The stock market is highly susceptible to changes due to fluctuations in the social-economic climate.  If experts can make informed predictions regarding the changes in the stock market, investors should consider all the factors before delving into an investment opportunity. They can help safeguard your investments and increase your chances of gaining profits rather than losing your investments altogether.

 

The above information does not constitute any form of advice or recommendation by London Loves Business and is not intended to be relied upon by users in making (or refraining from making) any investment decisions. Appropriate independent advice should be obtained before making any such decision. London Loves Business bears no responsibility for any gains or losses.

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