Global Stock Indexes to Post Single-Digit Gains by Year-End 2023
Global stock indexes are expected to notch only single-digit gains by year-end 2023. A pandemic in the form of COVID-19 has caused investors to reconsider the hedging effectiveness of gold and Swiss Franc inside risk-adjusted international stock portfolios.
Indian stock market is more integrated with the global market
The Indian stock market is increasingly interconnected with its global counterparts. This is because the Indian economy is considered to be the fastest growing in the world. It has averaged a 5.5% growth rate over the past decade. A large number of Indian companies are exporting their products to international markets. Global offshoring is also contributing to this fast growth.
Some of the major factors affecting the Indian economy are its GDP, domestic consumption, and energy transition. These three factors are largely driving the economic growth in India. However, there are many other factors that affect the economy. For example, news of an economic recession, speculation over interest rate cuts, and global commodities prices can cause short-term volatility.
Among the major factors influencing the Indian stock market are its linkages with other regional markets in Asia. These links are important because of the importance of commerce and trade between the two regions. Additionally, the G7 economic cooperation has played a major role in the establishment of links.
COVID-19 pandemic affects global stock indexes
Stock market indexes have been affected significantly by the COVID-19 pandemic. It was one of the deadliest and most severe outbreaks of this virus in recent history. In fact, it caused more deaths and economic losses than the Spanish Flu of 1918-1919. This has created a great deal of uncertainty in the minds of investors.
Since the news broke, traders have largely opted to sell their shares rather than invest. This has reduced returns across all indices. However, the severity of the COVID-19 effect varies from country to country.
Studies indicate that the stock markets of China, India, Mexico and Brazil were among the most severely affected by the disease. These countries play important roles in the global stock market. During the outbreak, these markets had the highest volatility.
The indices of these countries have been declining since the outbreak. However, they have stabilized after April 2020.
As COVID-19 continues to spread, countries are introducing new measures to contain the virus. They are imposing movement restrictions and issuing travel bans.
Swiss Franc has greater hedging effectiveness than gold inside various risk-adjusted international stock portfolios
A wide body of empirical literature has documented the safe haven status of the Swiss Franc in the past years. Despite the existence of a large body of work, the optimal asset allocation of the Swiss Franc has yet to be studied in the context of international portfolio diversification.
This paper aims to address this gap. By using a multinational model, it studies the performance of risk hedging measures in a diverse set of global stock portfolios. It then calculates the optimal hedge ratio and explores the defensive properties of the Swiss Franc.
The paper uses monthly data for the last two decades to compute the optimal hedge ratio for the various international stock portfolios. In addition, it analyzes the hedging properties of gold and the Swiss Franc. These results provide an insight into the dynamic pattern of hedging effectiveness.
The main policy implication of the study is that asset allocation strategies should give relative more weight to the Swiss Franc in global stock portfolios. This is because the properties of the Swiss Franc, which are viewed as safe havens in the future, are likely to persist.
Predicted to notch only single-digit gains by year-end 2023
Global stock indexes are expected to fall by the end of the year as investors anticipate further rate hikes from the Federal Reserve. By 2023, most of the major stock indexes are predicted to post single-digit gains. But, a recession remains possible, according to economists at Charles Schwab Investment Advisory, Inc.
Investors are hoping for a soft landing. The US economy is in a late-cycle expansion phase, which means the risk of recession is moderate. However, if the recession persists, stocks will likely fall into the low to mid single-digit range.
In an effort to mitigate the risks of a recession, the Fed raised borrowing costs in the third quarter. This caused profit growth to slow and resulted in losses across asset categories. Still, the profit outlook appears robust in the short and medium term.
Some of the biggest names on Wall Street have already announced job cuts and reorganizations. Johnson & Johnson said in a recent earnings call that the company is “skeptical about the economy’s potential for growth.” Similarly, 3M CEO Mike Roman stated that the company is “under pressure,” and a number of other companies have announced layoffs or other reductions.