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The relationship of stock market to macroeconomics

5 Mar 2019 03:51 PM

In the beginning, we must realize that the capital market is a mirror that reflects the economic performance of the state. The situation of the national economy reflects the position of the capital market through several tools that we review together:

1- Economic growth rates:

The rate of economic growth means per capita goods and services. Rising economic growth leads to an optimistic and optimistic attitude by increasing investment and production activity, which leads to increased dividends on equities, which stimulates individuals to increase demand for equities and lower bond demand on the back of rising risk appetite among investors. Conversely, if economic growth falls, this will affect stock prices.

2-  Economic growth rates:

Inflation means a continuous rise in the prices of all goods and services, and in the case of high inflation leads to a decline in the real income of individuals and therefore the decline in demand for securities. Higher inflation also leads to lower savings on the back of rising deposit rates. Finally, higher production costs due to lower profits and therefore lower demand for equities.

3- Unemployment rates:

Higher unemployment leads to a reduction in the volume of investments, leaving a pessimistic trend in the distribution of profits to reflect negatively on stocks. In addition to the decline in the size of income per capita, this reduces the purchasing power of the individual and thus the decline in demand for shares.

4- Exchange rate:

It is possible that the exchange rate has a direct and indirect effect on securities. The direct effect is through a lower exchange rate, which makes foreign investors go to securities to increase the ability to acquire a larger volume of securities. The indirect effect depends on the size of the transactions of companies registered with the outside world.

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