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The world can change but basic financial math doesn’t. The obvious decreases in future cash flows...

The world can change but basic financial math doesn’t. The obvious decreases in future cash flows from the virus is bringing stocks down. What is the other, probably more important factor driving valuation models now?

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ANSWER DOWN BELOW. FEEL FREE TO ASK ANY DOUBTS. THUMBS UP PLEASE.

The biggest factor besides future cashflows which is driving the Valuations is the Systematic risk in the Global Economy. Systematic risk is represented by beta and it determines the required rate of return.

Systematic Risk/Non-diversifiable risk/Market risk:

1. Risk related to the economy.

2. Cannot be killed by diversification.

For Example:

1. Suppose a Trade war is declared between two countries.

2. Government decisions / New political party coming into power. Geo-Politics.

3. Interest rate, Inflation fluctuation risk.

At this Moment of Instability & High systematic risk, where companies functioning or not functioning is dependent on government policies and decisions, if the company is in a country with high systematic risk then its valuations are going down.

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