The school of Grahan worked with a series of typical ratios that facilitated the valuation of the companies. Arguments such as “To buy a value when it quotes below 50% of its bottom of maneuver and to sell it when it surpasses the 100%”, they were very current reasonings then.
At the moment, when existing diverse economic sectors, cannot be spoken of general rules, since the general criteria of valuation and analyses cannot be applied of global form to all the values. For example, it is not possible to apply to the same criteria to the companies of services public, who to the electrical ones, banks, real estate or an industrial company. Therefore it is not possible to speak of general a fundamental analysis, but rather “submethodologies” based on the sector that is tried to analyze.
In the market of currencies (forex) the fundamental analysis is concentrated in the financial and economic theories, as well as in the political developments, to determine the forces of the supply and the demand of currencies. It includes/understands the revision of the macroeconomic indicators, the stock markets and the political considerations (these last ones influence in the confidence in the governments and the climate of stability of the countries). Between the more important macroeconomic indicators they emphasize the rates of growth, the measurements of the Gross Inner Product, the types of interest, the inflation, the rate of unemployment, the monetary mass, the foreign currency reserves and the productivity.
Sometimes, the governments try to influence in the forces of the Market taking part to avoid that their currencies separate from the wished levels. The interventions in the Forex Market are realised by the central banks and can have a remarkable impact, although temporary. Indeed, a central bank can enter the Forex Market more like an investor, buying or selling its currency against another one, or become jumbled in an intervention coordinated with other central banks to produce a much more sharp effect. Alternatively, some countries influence the quotes simply letting glimpse the possibility of an intervention, or threatening one.
The Forex Market picks up the expectations that the investors have on the evolution of the prices of currencies. The macroeconomic factors, the news with respect to a currency, or the events that happen in the country of this currency are determining in the evolution of their quote. The investors look for tracks in the macroeconomic data constantly to predict the behavior of currencies and to go ahead to the Market. Nevertheless, often, when they leave, the news already “are discounted” by the Market and they do not produce the awaited effect. Of there the popular advice: “Purchase with the rumor and sells with the news”.
The Governments publish with an established regularity the evolution of their main macroeconomic variables. The investors in the Forex Market anticipate themselves to these with their own estimations, and the prices of currencies incorporate these expectations. When a data is published that does not agree with the consensus of the Market, abrupt movements take place that can originate forts capital gains.
Main indicators in the fundamental analysis in forex:
1. Growth of the economy
The governments quarterly usually publish the number of growth of Producto Interior Bruto (PIB). It is a fundamental variable, since it is the most global measurement of an economy. In expansive economic cycles of growth, a greater rent available exists than it implies a greater consumption and saving as well. On the other hand, the companies are favored by the increase of the private consumption and the investment. Nevertheless, an excess in growth could be translated in inflationary tensions and ascents of types of interest. In principle, the higher GIP of the anticipated one will push the quote of the currency from the country the rise, whereas GIP pushes the smaller it the loss.
2. Evolution of the prices: Inflation
The appreciation or depreciation of a currency against another one is neutralized by a change in the differential of the types of interest. In principle, the currencies with higher types of interest are appraised due to the future containment of the inflation and to the greater yield than it offers these currencies. This macroeconomic variable follows month month. A greater IPC of the anticipated one will push the type of change to the rise, whereas if he is smaller of the anticipated thing it will push it the loss.
3. Unemployment
It is an indicator difficult to anticipate. It has an important political weight and an immediate repercussion in the level of rent available and consumption of the families. If the data of the use agriculturist are not majors that the considered ones, it will push the quote of the currency from the country the rise in relation to the rest of currencies. If the Rate of Unemployment is minor who the considered one, it will favor an appreciation of the currency of the country. And the same happens with the indicator of the “Hour Gains”.
4. Balance of payments
Ideally, the level of balance of a quote is that one that produces a balance of stable Current Cuenta. A country with a commercial deficit will undergo a reduction of its currency reserves, which, in last instance, diminishes (it depreciates) the value of its currency. One more a cheaper currency causes that the exports of the country are more accessible in the outside, at the same time as increases in price the imports. After an intermediate period, the imports are reduced, whereas the exports increase, becoming stabilized of that form the Trade balance and the currency towards the balance.
5. Flow of capital
The capital flow measures the net amount of a currency that is being bought and being sold due to capital investment. A positive balance of the capital flow implies that the entrance of capital of the foreigner of physical investments or portfolio exceeds the exit of capital. A negative balance of capital flow indicates that there are more physical investments or of portfolio realised by local investors who by foreign investors.
The capital flow can be classified in three categories:
Physical flow:
The physical flow of capital is divided typically in three categories:
Direct foreign investment – a foreign investment constitutes completely new.
Joint society – a society between a foreign organization and the premises.
Licensing agreements with third parties – the commercial purchase of patented applications of software, processes and marks.
It is important to observe the physical flow, since it represents the underlying changes in the present activity of physical investment. This flow varies in response to the changes of the financial health and opportunities of growth of each country. The changes in the local laws that stimulate the foreign investment, also help to promote the physical flow.
Flow of Portfolio:
Stock markets:
The evolution of the currencies is demonstrating every time more a strong correlation with the markets of assets, in particular with the actions.
As the technology facilitates the capital transference, to invest in the global markets of action has become more feasible. Therefore, a shareholding market in rise anywhere of the world serves like an ideal opportunity for all the investors, without concerning the geographic location. Like result, it has been developed to a strong correlation between the market of action of a country and its currency. If the action market is raising, the investments of dollars arrive to take the opportunity. Alternatively, the markets of bearish actions will have local investors selling their corporate shares that quote in stock market, to only take the opportunities investment abroad.
In terms of relative force, the historical evidence sample that the more hard is the performance of the market of action of a country, the more hard will be the valuation of its currency.
The attraction of the markets of capital on the rent markets fixes has increased through the years. From the start of the decade of the 90, the proportion of the foreign transactions of bonds of the government of the United States related to the EE.UU actions has descended from 10:1 to 2:1. Like result, the currency operators close by follow the global market of action to predict to short and medium term the flow of capital based on action. The indices of action observed more commonly are: the Industrial Index Dow Jones (Dow), S&P 500, NASDAQ, NIKKEI, DAX and FTSE.
Markets of Fixed Rent:
As well as the stock market is correlated with the movement of the rate of change, the same happens with the Markets of Fixed Rent. Time of world-wide uncertainty, the investments of fixed rent can become particularly attractive, due to the inherent security that they provide. Like result, the economies that are boasted to have the most valuable opportunities of fixed rent will attract majors originating actions of foreign investments; and naturally this will require first to buy the respective currency of the country.
The yield short and long term of bonds of international governments is a good indicator of the flow of capital of fixed rents. Differential is important to monitor spread enters the foreign Promissory notes of the Treasure of EE.UU 10 years and bonds. The logic back of this is that the foreign investors tend to place their bottoms in the countries with the assets of more high performance. Therefore, if the EE.UU assets have one of the highest yields, this will encourage more investments in the financial instruments of EE.UU., benefitting therefore to the American dollar. The investors also can use the short term yields like being spreads in promissory notes from the government to 2 years to consider the short term flow of the international bottoms. The yield of spreads present is approximated
Flow of Commerce: Measurement of Exports versus. Imports
The flow of the commerce is the base of all the international transactions. As well as the atmosphere of investment of any certain economy establishes the valuation of its currency, the flow of the commerce represents the net balance of trade of a country. The countries that are net exporter, which means that they export more to the international clients than they matter of international producers, will undergo a net commercial surplus. Those countries with a net commercial surplus are more prone to the increase of the valuation of their currency since its currency buys more than it is sold due to the strong inherent demand of the currency for commercial intentions.
Countries that is net importers – who mean that they make more purchases international than international sales – experiment what a commercial deficit is called which has the potential to produce a declivity in the value of the currency. In order to comprise of the international trade, the importers must sell their currency to buy merchandise or services. Clearly, a change in the payment balance has a direct influence in the levels of the currency. Therefore, it is important operators to stay them abreast of the economic data related to this balance and to include/understand the consequences of the changes in the payment balance.