Topic 5B. Macro Industry Analysis.pptx

Topic 5B. Macro Industry Analysis.pptx - BX2031:03 Personal...

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BX2031:03 Personal Portfolio Management Topic 5 – Investor preference and macro- and industry analysis of share markets 1
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After completion of this chapter you should be able to: understand why there are interactions between the equity market and other financial markets explain why forecasts of market conditions are difficult to make describe the effect of convergence on long term forecasts apply basic valuation tools in forecasting market conditions describe some approaches to defining industries 2 Learning objectives
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explain the GICS approach to industry classification define the industry life cycle and show how it may be used to explain changes in industries over time recognise the weaknesses of the industry classification approach use a pricing model to estimate an expected return for an industry summarise the arguments for using security selection models. 3 Learning objectives
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1 Introduction 2 Role of the economy 3 Market level variations in risk 4 Stock market analysis 5 Industry classification 6 Industry life cycle 7 Industry analysis 8 Security selection models and the business cycle 9 Summary 10 Tutorial problems 4 Chapter 12 outline
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5 Chapter 12 focuses on market and industry analysis. This chapter introduces top-down analysis Analysis starts at the market level, rather than on the expected movements at an industry level After market and industry analysis is complete, individual security analysis begins 1. Introduction
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The economy can be analysed in two parts: 1. Demand side (in particular, government policy settings) demand side-fiscal policy to influence economic growth includes government spending and taxes (i.e. Tax = G + w) demand side-monetary policy to influence economic growth: open market operations by RBA (i.e. money base and foreign currency) 2. Supply side: capital and labour. . Interactions: Can produce perverse outcomes throughout economy (e.g. government spending and crowding out effect, expansionary monetary policy and inflation) The key to macro economic modelling is to try to understand and explain the interaction effect on demand and supply sides 6 2. The role of the economy
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Key economic variables Gross Domestic Product (GDP) The market value of all final goods and services produced within a country in a given period of time ABS use 3 ways to measure GDP every 3 months The Expenditure approach (Total of all expenditures in the economy) The Income approach (total of all incomes in the economy) The Production approach (the market value of all transactions in the economy) Circular flow model… GDP = C + Ip + G + (X – M) Employment (also unemployment) Interest rates Expected inflation.
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