1. Politico-economic factors affect an industry and a country.
2.Stable political environment necessary for steady, balanced growth.
3.International events impact industries and companies.
4. Countries need foreign exchange reserves to meet its commitments, pay for imports and service foreign debts.
5. The possibility of the devaluation of one’s currency / the appreciation of another currency is a real risk. One can hedge this by entering into forwarding contracts.
6. Restrictive practices or cartels imposed by countries can affect companies and industries. Investors must determine how sensitive a company is to governmental policies and restrictive policies.
7. Foreign debt can be an enormous burden that would eat into a company’s results.
8. Inflation erodes purchasing power. Low inflation indicates stability and companies prosper at such times.
9. Low interest and taxation rates stimulate investment and industry.
10. Domestic savings can accelerate economic growth.
11. The development of a country is dependent on its infrastructure.
12. Budgetary deficits resulting from excessive governmental spending stimulate the economy. It also gives rise to increasing demand and increasing inflation.
Step-2: Economic Cycle
1. Business or economic cycle has a direct impact on the industry and individual companies. It affects investment decisions, employment, demand, and profitability.
2. Four stages of the economic cycle are depression, recovery, boom, and recession.
3. Investors should determine the stage of the economic cycle before investing. Investors should disinvest just before or during a boom.
Step-3: Industry Analysis
1. The importance of the industry can never be understated. The state of the industry will affect company performance.
2. It is important to determine the cycle. These are entrepreneurial or sunrise, expansion or growth, stabilization or maturity, and decline or sunset stages.
3. Investors should purchase in the first two stages and disinvest at the maturity stage.
4. It is better to invest in evergreen industries. The results of cyclical industries are volatile.
5. Investors should consider competition as the greater the competition the lower the profits.
6. It is safer to invest in industries not subject to government controls.
7. Export-oriented industries currently favored by the government.
Step-4: Company Analysis
1. The final stage of fundamental analysis is company analysis.
2. Areas to be examined are the company, the results, ratios and cash flow.
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