Stocks have dynamic price movements. At one time the price can go up, while at other times the price can go down. In general, this occurs because of a supply and demand mechanism that affects changes in stock prices from time to time.
The concept is that when there is a lot of demand for a stock, its price will go up. Meanwhile, when there are more offers for a stock, the price will fall. And if the level of demand and supply is relatively the same, then the stock price will go up and down in a limited way or what we call sideways.
But, if we go into details, the supply and demand itself is the actions of financial market participants. When they buy a stock, it means the demand for the stock is going up, and when they buy a stock the supply for the stock is higher.
Well, the selling and buying actions carried out by market participants are triggered by many factors which are classified into external factors and internal factors. These two factors have negative and positive impacts on the condition of the company and influence the actions of capital market players to buy/sell shares.
The following are external and internal factors that influence stock price movements:
A. External
1. Fundamental Conditions of Macroeconomics
Companies that are in a country whose shares will also follow the economic conditions of that country. When the economy is growing well, many companies will develop and attract investors to invest their capital there, so that many company shares will appreciate. Conversely, when the economy is sluggish and has an impact on poor business conditions, this will make investors have negative expectations of the company’s performance in the future, so they will withdraw their money and make the company’s shares depreciate.
2. Fluctuations in the USD Exchange Rate Against Foreign Currencies
The USD exchange rate is also a factor that can affect stock price movements on the Indonesia Stock Exchange (IDX). Especially for companies that do business internationally, either as importers or exporters.
The effects of fluctuations in the USD exchange rate can be positive or negative on stock price movements. For example, for companies that often import goods from abroad, the weakening of the USD against foreign currencies makes the prices of the goods they buy more expensive. This will have an impact on increasing operational costs and make the company’s profits smaller or even make the company lose money. And when the company loses, investors will sell the company’s shares to avoid a worse situation.
Meanwhile, for companies that export goods abroad, the strengthening of the USD against foreign currencies makes goods more expensive when sold on international markets. This could have an impact on reducing consumption of exported goods by foreign consumers, thereby causing the company’s sales to decline. If so, the company will experience a decrease in revenue or even suffer a loss. And in such a situation, investors will sell the company’s shares because they are considered not profitable.
3. Government Policy
Government policy is also one of the many factors that affect stock prices. The policies in question are government policies related to the business sector, such as export and import policies, company policies, investment policies by foreign investors, debt policies and others.
There are many examples where government policies can make the stock market volatile. For example, in 2020, the government issued a new normal policy in dealing with the global pandemic situation, Covid-19. This policy was then responded positively by market players and made the JCI strengthen, because by enacting this policy there is hope for the wheels of the economy to turn again.
4. The Panic Factor
The panic factor in general makes stock prices on the stock depreciate. Because generally panic occurs when stock prices experience a significant decline and it seems as if they will never recover. Therefore, investors try as quickly as possible to save their money which in the end makes the supply of shares much larger than the demand. Thus causing the stock price to fall.
5. Manipulation Factors
Manipulation factors also have an influence on stock prices, especially stocks with low volatility because they have a small market capitalization. An example is stocks that have a price below 1$. These shares tend to be easier to move by an entity, which is commonly referred to as a dealer, through buying shares on a large scale, thus making the share price significantly stronger. When many retail investors join in buying these shares, Banda will sell back the shares they own to investors and make the share price fall again.
B. Internal
1. Company Performance
Company performance is the main factor that determines stock performance in the capital market. The company’s performance can be shown by its financial performance which can be seen through the company’s financial statements. If the company’s finances look good, and the company has the ability to generate good profits, then investors will see the company as a potential company and can provide benefits if they invest there. Vice versa, if the financial performance is poor, which is a representation of the company’s business performance, then investors will view the company as a bad choice to invest.
In assessing the company’s performance, investors usually do not only judge based on the company’s current performance, but compare it with its past performance and carry out an analysis to estimate the company’s performance in the future.
2. Corporate Action
Corporate actions are also one of the factors that affect stock prices on the stock exchange. Because this can affect the company’s business and can be directly detrimental/beneficial for investors. An example is a Stock Split or dividing the nominal shares into smaller pieces, so that they become more affordable for investors to buy. Stock Split usually has a positive impact and makes stock prices strengthen, because it does not affect the proportion of investor’s shareholding and opens opportunities for new investors to buy company shares at a more affordable price.
These factors are usually not the sole cause, because each other influence each other. Such as economic conditions can affect the business sector then affect company performance, and conversely the performance of the business sector can also affect economic growth. However, in essence the determining factor that makes stock prices rise/fall is the decision of market participants to buy/sell shares of a company. Because basically price movements are the direct cause of fluctuations in demand and supply of market participants.
