The Implications Of Political Turmoil On Penny Stocks.

The Implications Of Political Turmoil On Penny Stocks

 

The state of the world’s politics hasn’t been the most stable as of late and for those within the financial markets, this can have an unavoidable effect on the condition of the markets. Those making larger investments may be able to ride out rocky waves of volatile stocks, but what about those of us investing in penny stocks? Can political turmoil truly shake up the markets enough to cause considerable damage? We’re exploring that and more, below.

 

Investor Response

 

While you’ll find plenty of people telling you otherwise, there is no clear, distinctive link between politics and the markets. In fact, the investor response to any political turmoil can ultimately depend on the issue at hand and the potential risks involved. After the Brexit referendum, the world saw a hefty drop in the price of Sterling, with the entire world, including the UK itself, uncertain as to what the UK’s future might hold. With the GBP dropping a huge 11.1% as a result, it was clear that the markets and their investors were not pleased with the result. However, when Brexit secretary David Davis resigned in July 2018, the markets barely responded at all. This could have been a testament to the fact that investors are eager for a soft Brexit and Davis appeared to be the hurdle to overcome, or simply a shrug from investors comfortable in the regulatory measures put in place to protect their safety and security in the markets. Whatever the case, the effect on penny stocks can often boil down to the severity of an event or whether it’s likely to prove risky to the value of any one stock.

 

Public Response

 

The public response to any political upheaval undoubtedly has an effect on the way that the markets behave. In fact, the behavior of consumers can devastate or accelerate a market all on its own and social trends are often to blame for drastic changes in these trends. When politics goes awry, you might find consumers less inclined to spend their money, which drives the markets to a grinding halt. Take Brexit again, for example; after the referendum vote, 80% of UK consumers admitted that they were concerned about potential rises in the price of food and other goods. With concerns over monetary situations, far fewer consumers may be willing to spend what they do have in an attempt to save, thus bringing markets down and potentially causing penny stocks to suffer. The herd mentality of consumers can also play a huge part in the stability or behavior of a stock. If a political event has driven a huge number of the public to avoid a certain product or service, or even to follow a certain product or service, then this can change the affected markets considerably. With more or less attention being paid to a certain company or business, the penny stocks associated here can tumble or soar, all dependent on the public behavior, and the resulting corporate response.

 

Corporate Response

The corporate response to any trend can have a devastating effect on the wider market and this doesn’t just apply to political upheaval. Take MailChimp’s ban on cryptocurrency marketing in April of this year – this event may have seemed innocent enough to the company, but the potential for collateral damage was huge on both MailChimp’s own stocks and the Cryptocurrency penny stocks market. By banning cryptocurrency marketing, the company would lose a percentage of its business and cryptocurrencies would lose a fraction of their publicity, thus potentially dragging down the markets as a whole. In terms of political action, the corporate responses work in a similar way. Dependent on their reaction, they could create either risk that will drive investors away, or profit potential to bring them in. As before, this can ultimately depend on the political issue at hand. Trump’s successful presidential campaign, for example, has divided US companies considerably. Walmart and PepsiCo came under fire in August 2017 when the chief executives were left unsure on how to respond to Trump’s response to violence in Charlottesville. Political opinion, particularly that of leading brands, can have an effect on their consumer base and in a country where the public is so widely divided in opinion, determining the best response can prove incredibly difficult. Therefore, every corporate stock is at risk with every comment that Trump makes – will the CEO agree or disagree, and how will this lead investors and consumers to respond? This is something that US investors deal with on a daily basis, and penny stocks, in particular, can face devastating blows if a company gets it wrong.

While penny stocks can be great investments, being able to effectively navigate markets affected by political turmoil today can seem like fighting a losing battle. However, with full risk assessments and ensuring that you’re only utilizing regulated systems, it’s definitely possible to do so successfully.

 

 

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