Global Stock Indexes Are Back on Track
After a bearish year, the major stock markets are back on track. Fiscal and monetary policies remain supportive, and there is little to worry about when it comes to the stock markets. While uncertainty over the potential travel ban from President Trump has dampened investor sentiment, the major global stock indexes have rallied to record highs and are consolidating for the time being. Here are some reasons why. Global stock indexes have seen some of their biggest gains in months.
One of the main advantages of global stock indexes is the detailed information they provide about companies worldwide. However, not all investors are comfortable investing in these indexes. Before investing in any global stock index, you should make sure that the company is reliable and has a solid track record. Some global stock indexes are targeted towards general investors, while others are designed for smaller investors. The best way to decide which index to use for your portfolio depends on your goals.
Currency strength is an important factor that can affect the performance of global stock indexes. Strong currencies tend to outperform weak ones. It is therefore important to understand how currencies affect stock market performance before investing. A strong currency correlates better with stock market performance than one that is weak or depreciating. This is why global stock indexes are useful in stock market analysis. It is a powerful tool for investors to monitor trends in equity markets.
The S&P 500 is the largest global stock index. It contains stocks from nearly every industry and region. This gives investors an accurate overview of the overall risk appetite. These indices are widely used as an investment vehicle and are popular among investors. You can build exposure to global stocks through exchange-traded funds and mutual funds. You can even invest in individual stocks to get exposure to specific indexes. One such ETF is the iShares MSCI World ETF.
The differences between regional stock indexes are often not so significant when considering the overall market trend. Over long periods, regional differences are less relevant. The big global movers exert their influence and drown out the minor, local factors. Investing in these global indexes offers a quick and efficient way to gauge risk sentiment. The major indexes also influence currency pairs. For example, the Nikkei tends to trend more closely with the European indexes than the FTSE.
COVID-19 is another example of an outbreak of the virus that affects economies and stocks. When the virus spreads, global stock markets shifted aggressively into the “risk-off” phase. A worldwide COVID-19 death rate of 1% would result in a drop of 0.02% in the Standard and Poor’s 500 index after a day, 0.054% in a week, and 0.8% in a month. Such a scenario is considered an extreme case but it does demonstrate the impact of COVID-19 on the economy.
In Q2, major global stock indexes continued to struggle. The S&P 500 dropped 5.33 percent, the Dow Jones Industrial Average fell 4.51 percent, and the Nasdaq shed 3.92 percent. The Japanese Nikkei 225 fell 2.89 percent. Meanwhile, China’s Shanghai composite index rose 5.13 percent, China’s Shenzhen component index gained 9.25 percent, and Hong Kong’s Hang Seng Index climbed 1.42 percent. This decline is a sign of a deteriorating economic climate.
There are also a growing number of hedged foreign funds that are designed to protect investors from currency fluctuations. Deutsche Borse, for example, recently launched a dollar-denominated MSCI EMU index, which tracks the 238 biggest companies in 11 countries. It’s the largest provider of hedged ETFs. These funds are ideal for investors who want to diversify their portfolios with a wide range of markets.
With global fiscal and monetary policies accommodative, global stock indexes have staged aggressive rebounds. Breakouts in April and May have renewed the bullish moves of March and may extend into the rest of the year. The tech-heavy Nasdaq 100 index is near its 20-month high and is likely to test that high in June. However, the market remains vulnerable to further corrections. It is essential to remain disciplined and to follow market updates carefully.
Research has also found a high degree of interconnectivity between stock exchanges. For example, during the financial crisis, researchers found that Asian markets experienced strong cross-market correlation. Chiang, Nam, and Li looked at nine Asian markets and found a strong relationship between them. The strongest cross-market links were in Thailand and China. The researchers noted that in nations with limited institutional participation, investor sentiment carries more weight. That means smaller firms can make a bigger difference in an index than larger companies.