The so-called fundamentals
mean a situation concerning several fundamental factors that may affect the trend of stock markets. Fundamental anaylsis carries out the anaylsis on fundamental factors according to how the theory may affect stock values and stock pricing trend to determine a particular stock resolution process for investment. Fundamental anaylsis is the base of stock investment anaylsis.
The so-called Fundamental Analysis indicates is based on different features including political factors, economic factors, social psychological factors, and etc. It can be divided into macro-factor and micro-factor according to its different scope. It can be divided into national factor and international factor, and etc. Political factor is a determined serial factor that may affect the political status with stability. Social psychological factor is a determined serial factor that may affect human psychological expectation. Economic factor includes macro-economy trend, various national policies, the development condition of the associate enterprise of listed company, the current development of listed company itself, and the “alternatives” of stock (Bonds, Funds) and the trend of market space. In general, the economic trend and stock market share a firmest connection with the each other. Meanwhile, economical factor also has the strongest influences towards the stock market.
Economic factors and fundamental factors mostly include
1. Macroeconomic Conditions
From long –term and the fundamental perspective, the trend of stock market is determined by the economical development standard of a nation and the condition of economical cinema. The pricing fluctuations of stock market also reflect tremendously on the changes of macro-economical condition. It is not hard to discover that the historical trend of foreign securities markets that the trend of fluctuations of stock markets is generally consistent with the economical life circles. During the prosperity, enterprises ran well and created more profits. Its stock pricing was going up as well. During the recession, enterprise has fewer revenues, and its profits downsized, which may results in everlasting downfall on its stock pricing. Yet, the trend of stock market and the time of economical life circles are not 100% the same. Most of the time, our variance of stock market must supersede in advance; therefore, stock market pricing is also called a micro-economic rain or shine watch.
2. Level of Interest Rates
In various factors of competitive market trends that may affect stock market, interest rate appears to be a more sensitive factor. In general, when the interest rate goes up, there may be a part of investment that attracts the banking saving system. It not only supports the amount of capital of the stock market, but also creates a certain influence in stock pricing. Meanwhile, due to an uprising in interest rate, the cost for running an enterprise increase, and the profits decrease, this relatively makes all the stock pricing to go down. On the contrary, the interest rate decreased. People may bring more capital to stock markets for their intrinsic needs for keep the added values. Accordingly, stock pricing was activated to go up. Meanwhile, the cost for running an enterprise lowered down due to a decrease in interest rate. And the profits increased, which also activates stock pricing to go up.
3. Inflation
Such factor has its pros and cons for the competitive stock markets, which not only activates the function of markets, but also suppresses the function of market. Yet, the shortcomings seem to be overwhelmed the beneficial. It will promote the optical foam of stock market and enlarge its size. In the primal stage of inflation, by borrowing currency from others, the production and consumption were both increased. The increase rate and the revenue of enterprise activate stock pricing to go up accordingly. Yet, when the inflation has reached to a certain degree, it will promote the interest rates to go up, and activates stock pricing to go down.
4. Corporate Quality
For some specific individual stocks, the main factor that affects its pricing relies on the intrinsic features of the enterprise itself including financial status, operational condition, managerial standards, technical capability, size of markets, features of industries, and development potentials, and other series of factors.
5. Political Factors
It means some political factors that may directly or indirectly affects stock markets, such us international and Vehicles and political trends, political events, relationship among nations, the changing lead of some important political leaders, and etc. All of which may create tremendous and sudden influence. This is also a prime respect to be considered in the fundamentals. There are other Technical Anaylsis compared to fundamental anaylsis. Technical Analysis is based on various charts, technical indicators to study on stock market behavior, and the approaches to variance trends to judge stock market pricing. As to those investors who enter stock market, in addition to learning how to use fundamental anaylsis, they need to learn how to use Technical Anaylsis. These two types of analytical approaches all originated from Western developed countries. In their long-term practices, many schools and theories of stock market anaylsis were generated thereafter. Within the analytical schools with the governing status: technical anaylsis school, fundamental analysis, and Comprehensive analysis.
Compared to Technical Analysis, Fundamental Analysis has the following characteristics.
(1) Fundamental Analysis is the Cause Analysis of Stock Market Fluctuation.
Fundamental anaylsis is to understand completely the reason and factor of stock fluctuations; therefore, we must analyze them and see how they may affect stock market by carrying out the study on various factors. If stock market turns down, fundamental anaylsis needs to make a reasonable anaylsis on the demand and support relationship and the influential factors, and points out the entire direction of stock markets and the fluctuations of individual stocks. Thus, investors can make use of Fundamental Anaylsis to trade for “which” question to correct possible false information of technical anaylsis. Since Technical Anaylsis focuses on short-term Quantitative Analysis, you may very likely to detect a phenomenon of “Seeing the trees but not the forest” For example, if a particular stock pricing continued to go up, all types of technical indicators would also demonstrate the signals of buy in. Investors must be careful if there is no significant changes happen to the fundamental condition of the issuer. Since such uprising of the stock may be a result of manipulated the major force capital, they would retreat to its place after the major force capital lifting stock pricing to a particular predetermined goal. These major capitals will take speculative profits as a result. Especially in China, this immature stock market, there are “traps” everywhere on the street. To see through these frauds is not what the non-Technical Analysis can approach and probe out. We need to depend on Fundamental Anaylsis to tack with such issue.
(2) Fundamental Anaylsis is Qualitative Analysis.
During Fundamental Anaylsis, what is involved may be the amount of economical indicators; however, this indicator has little influence on this issue and is hard to be quantified. We can only make them qualitative concerning how they may affect the direction of stock market. For example, if there is a relevant department that announced the unemployment ratio at a certain point, which decreases 2%, Fundamental Anaylsis cannot point out the numeral relationship between the ups and downs margin of stock pricing indicator and the 2% statistics. We can only make up a general judgment on the influential direction of stock market. A decrease in unemployment rate basically points out a certain degree of transfer in good aspect. In long-term perspective, this indicator supports the uprising stock market; yet how it can contribute to the uprising stock indicators is unknown for sure. Meanwhile, Fundamental Anaylsis cannot solve the listed opportunity problem. Only if you have a basic judgment on the trend of stock markets and individual stocks, can you find the proper chance to enter the stock market by combining Technical Anaylsis.
(3) Fundamental Anaylsis is Analysis of Long-Term Investment.
The second feature of Fundamental Anaylsis determined it is a long-term investment Anaylsis instruments rather than a short-term analysis instruments. Basically, Fundamental Analysis put more emphasis on the judgment of general trend and the factors to investigate are mostly came from macro-factor and medium scope of factor. They all have great influence on stock markets. There must be a certain prospective on its conclusion, which has an instructive significance on long-term investment. The investment made accordingly is to obtain long-term reward and to share the outcome of the entire economical enhancement rather than short-term speculative revenues. Short-term speculators basically uses analytical instrument know as Technical Anaylsis to see whether it can succeed on stock market. In a certain degree, it depends on the perspective and action of speculators. From long-term practices, frequently going in and out the stock market can hardly obtain fruitful profits. Small and medium-sized retail investors are hard to rely on “grabbing points” to win. They can make it even in average. Most of the time, they will lose entering the market. Those who engage in long-term investment rely on fundamental analysis to determine which stock to invest, and then will spend a long time on this stock with their capitals to obtain long-term revenue that comes with this stock. Only when macro-economic trend started to change, or there is a tremendous change in the released individual stock and its enterprise’s operational condition, will the investors change the investment strategy. In short, the advantage of Fundamental Anaylsis lies in its much correctness to take control of stock direction, and to provide a resolution base for long-term investors. However, its disadvantage is longer time effectiveness, and it’s harder to make a correct judgment on the specific listed time. To solve this issue, you need to rely on Technical Anaylsis for aids. Hence, Fundamental Anaylsis only apply to general trend anaylsis, and is not applicable to the resolution for specific listed opportunity.