Share movement, also known as stock movement, is the changes in price that a company’s shares experience over time. It can be affected by numerous internal and external factors to the company. Critical factors that influence the share movement include political stability, economic conditions, and cultural preferences in Asia.
Political stability
Political stability is an essential factor when looking at Asia’s share movement. Investors are often hesitant to invest in companies based in countries with unstable governments or high levels of political unrest. For example, shares in Thai companies experienced significant volatility during the country’s 2014 military coup.
Economic conditions
Economic conditions are another major factor influencing the share movement in Asia. For instance, Japanese stocks tend to be more volatile when compared to those of other Asian countries due to the nation’s sizeable debt-to-GDP ratio. Investors are more likely to invest in companies based in countries with strong economic prospects.
Cultural preferences
Cultural preferences play a role in the share movement in Asia. For example, shares of Chinese companies listed on the Hong Kong Stock Exchange have historically been more volatile than those from other Asian countries. It is partly because mainland Chinese investors tend to be more speculative.
Other factors
Other factors influencing share movement in Asia include natural disasters, such as the large-scale earthquakes that hit Japan in 2011, and pandemics, like the outbreak of SARS in 2003. These events can often lead to widespread sell-offs as investors seek to minimize risk exposure.
Risks of stock movement
Volatility
Volatility is the most common risk for stock movement because share prices can fluctuate rapidly and without warning, often in response to changes in the political or economic landscape. For example, shares of Chinese companies listed on the Hong Kong Stock Exchange have been known to experience sudden and drastic drops in value.
Loss of capital
Another risk associated with stock movement is the loss of capital. It can occur if traders sell shares at a lower price than they purchased them. For instance, if an investor buys shares for $100 and the price of the shares subsequently falls to $50, the investor would have lost $50. In some cases, investors may be unable to sell their shares, leading to a complete loss of capital.
Illiquidity
Illiquidity is another risk that investors face when dealing with stock movement. It refers to the difficulty in selling shares, often due to a lack of buyers. In such cases, investors may be forced to sell their shares at a lower price than they would have liked or may even be unable to sell them.
Inadequate knowledge
Investors also need to be aware of the risks associated with inadequate knowledge, which means not fully understanding how the stock market works or how share prices are determined. It can lead to investors making poor investment decisions, resulting in losses.
How to mitigate these risks
Diversify your portfolio
One way to mitigate the risks associated with stock movement is to diversify your portfolio, investing in various companies from different countries and industries. You can minimize your exposure to any one particular risk by doing this. For example, if you invest only in Japanese shares, you may be more vulnerable to changes in the country’s political or economic conditions. You can also trade with assets like a CFD or ETF to diversify your portfolio.
Use stop-loss orders
Another way to mitigate the risks of stock movement is to use stop-loss orders. It is an order instructing your broker to sell your shares when they reach a specific price. For example, if you own shares in a company currently trading at $100, you could place a stop-loss order at HK$90, and it would limit your losses if the share price fell to HK$90.
Avoid investing in shares of companies that you don’t understand
It is also important to avoid investing in shares of companies you don’t understand because you may not be aware of all the risks associated with the company. For example, if you invest in a Chinese company listed on the Hong Kong Stock Exchange, you may not know that mainland Chinese investors tend to be more speculative.
