Fundamental analysis

The monetary policy maintained by central banks directly affects capital and money markets, as it regulates the supply of money and thus directly affects its value.

Economic relations have a serious impact on how investors perceive local markets. If a country has established strong trade relations, investors consider this country economically stable with the possibility of increasing profits.

The situation in other markets is important when considering an investment decision regarding where and when funds should be transferred between countries. When capital markets in one country move in the opposite direction of the trend, investors begin to incur losses, capital will move out of the country, and may also provoke a depreciation of the local currency.

One of the important factors affecting capital markets is the current economic conditions of individual companies. A company's positive economic situation may encourage investors to invest their capital in its shares. The poor economic situation, in turn, forces investors to move their assets to other companies and/or eventually withdraw capital from this country.

Legal acts, local or international, can have medium and long-term effects on capital markets. Legal acts can create barriers, or vice versa – act as an impetus for foreign economic investment.

The weather directly affects the prices of goods, which in turn affect companies using these goods as raw materials. Rising commodity prices also increase the cost of products. This, in turn, depending on the type of enterprise and company, leads to a decrease in profits and negatively affects the company's reporting. The deterioration of the economic situation leads to a drop in stock prices, which in turn forces investors to withdraw capital from this company.

Political situations or conditions have a significant impact on capital markets. When the country has a stable political situation (foreign or domestic – international politics), investors are comfortable investing in this country. On the other hand, in times of political instability, traders can react by withdrawing funds from a given market or region.

The economic downturn can have various sources. It can be financial (for example, a banking crisis), commodity-related (for example, an oil crisis), political, or others. It is common that during a downturn, people tend to withdraw capital from the market in order to “save themselves from the worst moment.” Therefore, the most exposed to risk are banking and financial sectors, tourism, automotive, etc.

The economic growth situation in a country or region is favorable for companies that sell their products to consumers in this area. Economic growth usually means that customers are more optimistic and in a better economic position, so they can afford more, and are predisposed to make real purchases. The expected increase in profits of companies selling more and more of their products may attract both local and foreign investors who create demand, resulting in an increase in the price of the company's shares.

Expert forecasts may match or contradict investors' expectations. As a rule, they do not have a direct impact on capital markets, but the mood of market participants can be affected when "experts" represent national authorities – either political or monetary authorities. When monetary authorities make statements about the economy as a whole, they can give signals about future speeches or hints about the future of monetary policy. This, in turn, can affect the supply of money and the interest rate (the latter is the most interesting factor for foreign investors). Please get advice from an independent financial advisor if you have any doubts about the specification of market instruments and mechanisms.