Day 114 Highlights in the market

 Highlights in the market

As rational investors, we need to be aware of the potential fluctuations in the stock market, in order to make relative decisions. Therefore, it becomes crucial for us to highlights all the possible risks that may lead to a capital loss. In my opinion, there are three major factors that have a profound impact over the share price: the movement of the majority of funds, the investors’ confidence and the company’s performance. These elements are correlated, but the sources of the variation are distinct with each other. In this article, I would like to illustrate several examples of these anticipated factors. 

Firstly, the large fund inflows and outflows intensively change the share price performance. Since these funds holders are financial institutions, and they have considerable influence over the financial market, which is derived from the enormous quantity of the fund. Thus their movement can normally be treated as the pattern of the market behavior. Especially for individual investors, if there is a way to find out the movement of these funds, we can easily obtain a benefit by follow them. Unfortunately, the trend can be erratic, so it is difficult for individual decision-makers to clearly identify the flow of funds. The information asymmetry allows these funds always to react faster than us. However, at least we can somehow predict the movement under specific circumstances, and thereby predict the market pattern. For instance, the IPO has released the restriction on financial funds to invest in Hong Kong’s stock exchange. As a result, we can expect there would be huge quantity of funds surge into the Hong Kong market. There were two impacts of this fund movement: the Hong Kong’s average stock performance would rise and imply a negative effect over the Chinese stock market. It is a straight-forward demand-supply relation and its influence over the market. In addition to this major outsource of funds, the new issued shares would also divert capital form the current market. It will have a smaller impact compare to the Hong Kong market event, since the low success rate stopped many investors on applying for new issued shares. 

Another significant announcement in the market this week was the disclosure of China economy data on first quarter of 2015. The lowest growth rate in six years at 7% may affect the investor’s confidence on the market. Due to the overall performance on the market is closely linked to the economy prosperity. If investors do not have enough faith in the market, they tend to act according to the prudential methodology to maintain a low level of stock on hands. 

At last, the potential risk imposed by the policy change that may vary the company’s profitability should be acknowledged. For example, the entitlement for individuals to establish multiple security trading accounts could immensely diversify the brokerage market. The broker company will confront intensified rivalry, and the competitive power of each firm should be revealed respectively. As a consequence, the broker company with more efficient strategy will win the competition and brings out even better performance. On the other hand, the losers in the arena can be expected with a diminishing profitability in the future. Obviously, buyers will be only interested on the better performance company’s share. 

In conclusion, these three major forces in the market have provided a basic direction for us to reasonably predict the market movaement. So we should understand the highlighted events in order to determine the potential fluctuation of the market,   

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