1. Political issue
The political issue is a significant factor in the stability of the economy in general and the stock prices in the financial market in particular. Political instability and exposure to political shocks such as protests have confirmed the changes in market volatility as a result of some domestic and international events that impact the domestic economy and the financial market.
2. Oil price
The oil price and the stock market work in the opposite direction, with an increase in oil price leading to a decrease in the returns in the stock market. However, because the Saudi economy is oil-based, the increased oil price may bring a positive impact on the Saudi stock market. For instance, when OPEC cuts output or inflation pushes crude prices higher, the Saudi stock market may have a stronger performance.
3. Company performance
Many events can cause the price of a stock to rise or fall, from specific news about a company’s earnings to a change in how investors feel about the stock market in general. Here are some company key factors that can affect the share price:
- News releases on earnings, profits, future estimated earnings
- Announcement of dividends
- Introduction of a new product
- Product recalls
- Securing a new large contract
- Employee layoffs
- Anticipated takeover or merger
- Change of management and accounting errors or scandals
4. Investor sentiment
Investor sentiment or confidence can lead the market to go up or down, which can cause stock prices to rise or fall. The general direction that the stock market takes can affect the value of a stock:
- Bull market: A strong stock market where stock prices are rising and investor confidence is growing.
- Bear market: A weak market where stock prices are falling and investor confidence is fading.
For example, brisk economic activities, sequential gains in corporate profits, lucrative IPO activities, a strong real estate market, and very high oil prices can push bullish sentiment in Saudi Arabia higher. However, when an economy is in recession and unemployment is high, the market sentiment may be bearish.
5. Economic outlook
If it looks like the economy is going to expand, stock prices may rise. Investors may buy more stocks thinking they will see future profits and higher stock prices. If the economic outlook is uncertain, investors may reduce their buying or start selling.
6. Interest rates
The Saudi Arabian Monetary Authority can raise or cut interest rates to stabilize or stimulate the economy, otherwise known as monetary policy. If a company borrows money to expand and improve its business, higher interest rates will affect the cost of its debt. Besides, a higher interest rate can also reduce company profits and the dividends it pays its shareholders. As a result, the share price may drop. Apparently, during the period of higher interest rates, investments that pay interest tend to be more attractive to investors than stocks.
Inflation means higher consumer prices and this often slows sales and reduces profits. Higher prices will also often lead to higher interest rates. For example, the central bank may raise interest rates to slow down inflation. These changes will tend to bring down stock prices. Commodities, however, may do better with inflation, so their prices may rise.
Falling prices tend to mean lower profits for companies and decreased economic activity, so stock prices may go down, and investors may start selling their shares and move to fixed-income investments like bonds. Interest rates may be lowered to encourage people to borrow more. Whereby the goal is to increase spending and economic activities.
- Political actions can have a direct effect on the economy, and they also have more of an effect on the stock market. For example, political actions like laws and regulations impact the economy, and they could also affect the stock market.
- The price of oil and the stock market work in the opposite direction, but the increased oil price may bring a positive impact on the Saudi stock market as the Saudi economy is oil-based.
- Investor sentiment or confidence can lead the market to go up or down, which can cause stock prices to rise or fall.
- Higher interest rates tend to negatively affect earnings and stock prices, and lower interest rates are a benefit to personal and corporate borrowing, boosting a company’s earnings and stock price.
- Economic data reveals information about Saudi Arabia's economy. If the economy is doing better than expectations, it creates more demand for stocks in anticipation of better earnings.
- Inflation means higher consumer prices and this often slows sales and reduces profits. These may bring down stock prices.
- Falling prices tend to mean lower profits for companies and decreased economic activities, so stock prices may go down, and investors may start selling their shares and move to fixed-income investments like bonds.