Introduction to the Australian Stock Exchange
The Australian Stock Exchange (now known as the Securities Exchange,commonly referred to as the ASX) is the main stock exchange in Australia. The ASX originally began in 1861. Currently, all trading on the ASX is done electronically, with the exchange itself being a public company, which also trades on the exchange itself!
In 2006, the Sydney Futures Exchange merged with the Australian Stock Exchange to form the Australian Securities Exchange
ASX Share Prices
The price of shares on the ASX fluctuates considerably, owing to a number of factors. These factors relate to interactions within individual businesses through to interactions in the broader Australian and Global economic system.Although the local Australian economy does not occur in isolation to the greater Global economy, historically, when Australia’s economy has been strong, share prices on the ASX have generally risen, wheras in a weaker economy they have fallen.
Factors influencing the price of shares on the ASX
There are a number of factors that affect the price of a shares on the ASX. It is difficult to pinpoint the exact drivers behind the market, however there are several factors that can influence the price of a stock.
The most basic principle of economics applies – the amount of stock on an exchange is limited, therefore if demand for a particular stock increases, the price will go up. A lower demand will general result in a lower price for a particular stock. What are the contributing factors behind demand for shares?
Share prices on the ASX are driven by individuals that try to foresee the future value of a stock. In between the normal ASX trading hours of 10am-4pm (and outside of trading hours), a number of events could happen within a company that could influence its share price.In Australia (and other countries around the world) the following factors can influence the price of shares:
- environmental factors (bushfires, flooding and drought)
- political factors (rumours of war, change in governments)
- economic factors (change in interest rates or taxation)
- company performance (profits and movements within a company)
Company performance
A company’s ongoing performance, in particular company profits, is a key contributing factor in the price of shares in a particular stock. Companies that are performing well will result in investor interest and therefore an increased demand in their shares. Those companies that are not performing well will result in investors selling a company’s shares, resulting in share prices falling. The ASX routinely publishes news relating to a company that may or may not influence its share price.
Interest rates
Interest rates are a major influence on share prices. Bull markets on the ASX (markets showing an upward trend) generally relate to lower interest rates, whereas Bear markets (those in a downward trend) generally relate to higher interest rates
Interest rates themselves are principally determined by a demand for capital, which forces them up and suggests that an economy is performing well and that shares are likely to be expensive. A lower interest rate implies a reduced demand for capital, which would result in lower share prices, across the board.
Why do political movements impact a company’s share price?
Movements in politics can occur nationally or internationally and will more than likely impact prices on the ASX as a whole, rather than individual companies.
How do I find the prices of shares for ASX-listed companies?
ASX share prices can be accessed a number of ways – through:
- the ASX Website
- Yahoo Finance
- Factiva
- ASX-listed company websites (this information is usually quote on the home page)
Summary
Share prices on the ASX fluctuate on a day to day basis. Outside of the above factors, there are unknown factors that influence the prices of shares – factors that economists can never fully determine. The onus is therefore on the investor to manage the risk involved in purchasing shares.
Partners:
Find out more about ga equity today