Stock Market Analysis

Stock market analysis is part of the top down approach to stock valuation. In stock market analysis, you will find stock market factors as well as economic influences. Stock market analysis is key to stock investing. Investment and stock analysts need to decide:

• which country to invest in
• whether to invest in equities, bonds or other instruments
• which sector of the stock market to invest in
• which companies to select within a particular sector

What is the purpose of stock market analysis?

The purpose of stock market analysis is to identify whether a particular country's stock market is attractive for investing. In stock market analysis, there are key economic factors and influences to consider which have effects on the performance of the stock market.

Monetary Policy

Monetary policy has a large impact on the performance of the stock market. If the monetary policy aims to :

• restrict growth in the monthly supply - then it will reducing the supply of funds for investment, or
• increase interest rates - then the cost of capital for companies would increase and the cost of borrowing for consumers would also increase.

Fiscal Policy

Government spending has a multiplier effect (see Keynes' economic theories in economics).

Inflation

Unexpected changes in inflation rates will make planning difficult, therefore reducing growth.

Political Uncertainty

In some countries where the political outlooks are uncertain means additional risks for investors because anything could happen in those countries. The government could suddenly seize all assets of the people although too extreme and unlikely.

When doing stock market analysis, stock analysts have to take all the above factors into account as well as many other factors. Then the analysts can recommend based on their market analysis whether to go underweighted or overweighted in the investment portfolio for that country's stock market.