Key Factors Driving Stock Prices: Insights for Investors

Factors Affecting Stock Prices

Macro-Economic Factors

1. Economic Growth

The strength of an economy always mirrors the value of the businesses within it. When GDP grows, it often leads to a thriving market. Companies gain opportunities to expand production, improve revenue, and achieve ambitious goals. This typically drives stock prices upward. On the other hand, economic downturns reduce consumer demand, putting many companies in a challenging position.

Globally, the growth of major economies like the US or China creates ripple effects. For instance, when China announced GDP growth of over 6% in 2023, export-driven sectors in Vietnam, such as textiles and seafood, immediately experienced positive impacts.

2. Interest Rates

If there’s one factor that “haunts” the stock market, it is interest rates. When rates rise, borrowing costs become burdensome for businesses. Lower profits and reduced expansion potential often deter investors. Why risk investing in volatile stocks when savings accounts can offer similar returns? KTGA recalls observing this phenomenon in 2022 when rising interest rates in the US led to a significant decline in technology stock prices.

3. Inflation

Inflation isn’t just a consumer wallet issue; it’s also a major concern for businesses. Rising prices reduce purchasing power and erode corporate profit margins. Interestingly, not all sectors are negatively impacted. Industries like energy and basic commodities may benefit as their product prices rise alongside inflation.

4. Fiscal and Monetary Policies

Policies from central banks or governments often act as an “invisible hand” shaping the market. For example, an economic stimulus package or tax reduction decision not only provides relief for businesses but also encourages capital flow into the stock market. KTGA believes understanding these dynamics is a key strategy for investors to seize opportunities early.

Industry Factors

1. Industry Health

Fast-growing sectors like technology often attract strong investment, while traditional ones like agriculture tend to remain stable but less appealing. However, intense competition in any industry can make it difficult for businesses to maintain profit margins.

2. Regulatory Environment

Regulations are a double-edged sword. Changes in legislation can either open up opportunities or place significant pressure on businesses. For instance, in the healthcare sector, new insurance policies have previously caused dramatic shifts in the stock prices of pharmaceutical companies.

Company-Specific Factors

1. Business Performance

When financial reports show strong growth in revenue, stock prices almost always reflect this positively. KTGA once observed a dramatic surge in the stock price of a Vietnamese technology firm immediately after it announced quarterly profits exceeding projections by 30%.

2. Corporate Governance

Trust is the key. A reputable, transparent management team is a major asset that attracts long-term investors.

3. Financial Structure

High debt ratios are a red flag, particularly in a rising interest rate environment. Conversely, a healthy capital structure ensures stability for the business in the long run.

Market Sentiment Factors

1. Investor Psychology

The market is always influenced by emotions. Optimism can push stock prices far beyond their actual value, while widespread pessimism can drive prices down significantly.

2. News and Events

Even small news can shake the market. In 2020, for example, when a major technology company announced a breakthrough product, its stock price surged within 48 hours. Conversely, unexpected events such as financial crises or unfounded rumors can cause prices to plummet dramatically

Methods for Analyzing Factors

Fundamental Analysis

1. Evaluating Financial Indicators

Fundamental analysis starts with assessing financial indicators, which act as the “health metrics” of a company. Indicators like P/E (Price-to-Earnings) help determine how the market values a stock compared to the company’s earnings. P/B (Price-to-Book) measures market value relative to book value, while ROE (Return on Equity) and ROA (Return on Assets) reflect the efficiency of capital and asset utilization.

For instance, a company with a P/E ratio lower than the industry average may appear to have growth potential or be undervalued. However, this needs further validation through other factors such as management quality or market prospects.

2. Analyzing Financial Statements

Financial statements are not just records of revenue and profit but also provide detailed insights into a company’s assets, liabilities, and cash flow. KTGA believes that thoroughly examining the balance sheet, income statement, and cash flow statement can help investors gain a clearer picture of a company’s actual financial standing.

For example, a company reporting strong profit growth but showing negative operating cash flow could indicate liquidity risks. This requires careful consideration before making an investment decision.

3. Assessing Long-Term Growth Potential

Beyond financial metrics, long-term growth potential is a key factor. Elements such as expansion strategies, product innovation, or the ability to penetrate new markets need to be evaluated. A technology company with groundbreaking products and a clear globalization strategy often attracts investors due to its positive long-term outlook.

Technical Analysis

1. Using Charts and Technical Indicators

Technical analysis focuses on identifying stock price trends through charts and indicators. This approach not only helps predict future price movements but also pinpoints significant support and resistance levels.

For instance, when a stock price breaks through a strong resistance level, it could signal the start of a new uptrend. Conversely, if the price falls below a support level, investors may consider exiting to minimize risk.

2. Common Tools

Technical tools like Moving Averages (MA), Relative Strength Index (RSI), and Moving Average Convergence Divergence (MACD) are invaluable for investors.

MA: Shows the overall price trend over a specific period.
RSI: Evaluates the strength of the current trend and identifies overbought or oversold conditions.
MACD: Analyzes market momentum and reversal signals.

3. Applying to Identify Optimal Buy and Sell Points

Combining technical indicators allows investors to identify the best entry and exit points. For instance, when RSI enters the oversold zone (below 30), it could be a good time to consider buying. Conversely, when RSI exceeds 70 (overbought zone), selling to secure profits may be prudent.

Market Sentiment Analysis

1. Monitoring Cash Flows and Trends of Large Investors

Market sentiment is heavily influenced by cash flow, especially from large institutional investors. The movement of such funds often indicates the market’s next direction.

For example, when large investment funds begin pouring money into a specific sector, stock prices within that sector often follow an upward trend.

2. Evaluating the Impact of News and Unexpected Events

News and events are powerful catalysts. Positive announcements, such as signing major contracts or groundbreaking innovations, can quickly drive stock prices up. Conversely, unexpected events like financial crises, wars, or natural disasters can lead to steep price declines in a short time.

KTGA observes that understanding not just the headlines but the deeper impact of news helps investors make informed decisions and avoid being swept up in herd behavior.