Global Stock Indexes and Forex Indexes
Global stock indexes are a common way to measure the performance of stocks around the world. They are compiled by taking a representative sample of the stock market and calculating an average stock price. These indices are designed for both analytical and benchmarking purposes and are widely available. Indexes can also be customized to meet individual investor needs. This article outlines how global stock indexes work and the benefits of using them.
While global stock indexes are made up of a collection of stocks, there is a difference between them. While market-cap-weighted indices take into account the size of companies, other indexes are based on the performance of a basket of stocks. This makes them vulnerable to changes in the biggest stocks. Therefore, a professional trader may opt to focus on these indices to make a profit.
The MSCI World index includes stocks from similar countries, while the MSCI Emerging Markets index meets the growing demand of investors in emerging markets. Another difference between global stock indexes is how they weight their components. The S&P 500 index, for example, is market-cap weighted and covers the 500 largest companies in the S&P Total Market Index. An equally-weighted index will cover a broader range of companies and provide a more balanced and diversified portfolio.
Since the start of 2019, global stock indexes have been quite volatile. The trade war between the United States and China has dominated the headlines. In February, a trade deal was signed between the two countries. Then, in March, a coronavirus epidemic broke out in China and quickly spread globally. The global stock market indexes were negatively affected by the outbreak and the country-wide lockdown. Increasing unemployment and falling consumption rates were also contributing factors to the stock market’s high volatility.
Traders are closely watching corporate earnings and the release of key economic reports. On Tuesday, US stock indexes opened to the upside. However, the major stock indexes in Hong Kong, Paris, and Tokyo fell sharply. These countries’ economies have been weighed down by political worries. The market is watching closely for further details of Donald Trump’s economic agenda.
Markets are likely to stage a U or L-shaped recovery. However, an aggressive stock index rebound requires a V-shaped recovery. Nevertheless, the short-term outlook is still bullish, suggesting renewed upside into June. But the longer-term outlook remains mixed. A prolonged bull phase is unlikely. The markets may remain within the ranges defined by the first-quarter 2020 bear market, and the Federal Reserve might consider tapering asset purchases earlier than previously planned.
A recent study conducted by Hasan et al. compares the Dow Jones Index, the FTSE Index, and the MCSI equity indexes in 50 countries. They find that the performance of both conventional and Islamic stock indexes dropped similarly. They also found that USD is a useful predictor of conventional indexes. This study shows that the USD can be used as a global benchmark. Further research is needed to establish the exact relationship between global stock indexes and the various currencies.
Although the dollar index has hit its lowest level in three months, global stock indexes have edged up on Wednesday. Investors remain cautious about the prospects for a rate hike in the U.S. because of concerns about the global economy. The Fed has said that it will only raise rates once it has confirmed that the economy is improving. The strong dollar has hurt companies’ profits and discouraged consumers from spending.
