Day 106 The stimulation force in the stock market

The stimulation force in the stock market

We have discussed the power of positive information that tremendously promotes the performance of shares. Sometimes this effect can be so strong, which support the stock price to continuously increase in several days. However, this phenomenon does not always appear, as well as the influence of negative disclosures may be trivial. So what extent could this news stimulate the market value, and what are the opposite force which prevents significant variations of the share price?

In order to understand this issue, we have to observe a couple of examples on the market. First of all, the China North Railway Co. announced the amalgamation with China South Railway Co. had been unanimously granted by the IPO. On 7th April, which is the next day of this disclosure, China South Railway Co. share price sharply raised 10%. Obviously, this announcement has been considered as an extreme stimulation force in the market. The reason behind this is the investors were expecting this notice. The consolidation of these two huge corporations will definitely boost the potential profitability of the new company. Since the essential factor that determines the stock value has always been the company’s performance. Remember the share provides return based on the net profit distribution. Therefore, even investor seeks for capital gain rather than a dividend stream, the profit will still be a core element used on share evaluation. Another reason for this sudden increase should be the increase potential for this share was not fully reflected. Due to the bulls and bears’ force in the market was at balance. Investors tend to halt and observe the further movement of the share, hence the price fluctuates on a stable scale for the period. Once the merge process was confirmed, the watchers swarm into the market and increase the demand power. The same corollary applies to the shares reacts insensitively to the positive/negative information. Northeast Pharmaceutical Group Co. Ltd also declared their net profit had increased by 1.5 times compare to last financial year. However, their share price remains at a stable volume today. That is because the share price has already been stimulated by the pre-disclosed report three days ago. Thus the increase potential for the company has reached its periodic ceiling. The buyers will choose to monitor the market movement before taking actions.

Although the information is very important factors used by investors to predict share price movement, it is not always accurate. Other elements such as increase potential like we stated above should be considered.