Stock Index Trading
Stock Index Trading
Global stock indexes have experienced an unstable environment for both short-term investors and long- term investors over the last year, with the spotlight last year on the trade dispute between China and the U.S. but the ink has hardly dried on the so-called “Phase One” trade agreement between these two nations. In fact, despite the high level of political controversy, global stock index performance over the last year has actually been slightly better than average.
If you’ve looked closely at international stock markets over the past couple of years, you’ll know that China’s continued rapid growth and subsequent rise in value against the U.S. dollar have been highly dramatic, particularly in relation to many of its competitors. The rapid increase in the value of China’s currency has also caused its domestic economy to grow at a faster rate, which has a significant impact on many of the world’s economies.
With all this going on, it’s no wonder that investors have become increasingly concerned about the stability of global stock indexes. In some ways, the current uncertainty surrounding China and its trading partner the U.S. is reminiscent of the events surrounding the collapse of Lehman Brothers in 2008. The same dynamics are likely to be in play this year, although with a more manageable degree of impact.
Of course, there is no doubt that China’s stock market has risen dramatically over the last few years. If you were to take a random sample of global stock indexes over the past year, you’d probably notice a marked increase in Chinese stocks in the top 20. There are several reasons for this growth, but the main one is the fact that the value of China’s currency has fallen against the U.S. dollar, but stayed relatively constant against other currencies, such as the British pound, euro and Japanese yen. This relative stability, coupled with a high level of leverage, has led to rapid growth in China’s share price – which has been further amplified by the recent announcement that the government will be conducting a massive share offer.
If you’re a savvy investor, you’ll probably be taking advantage of the recent announcements by the authorities to invest in financial spread betting on China – especially as they become more transparent as they implement reforms and start to attract institutional capital. In this case, the recent announcement that the government is going to be conducting a share offering could potentially provide a good opportunity for traders to make some very good money if they can identify strong buying opportunities with leverage.
Although the stock market seems to be behaving as if there is some sort of “Phantom Stock Market Outrage” occurring in the U.S., this is not necessarily the case. Even with the recent spike in share price, the market has actually performed reasonably well for the last few years. It’s likely that investors who have been following global stock indexes over the last couple of years will have been able to identify very few surprises in the news. Most of the major headlines were over economic developments and market corrections, such as the recent U.S. stimulus package, which helped the market to get back on track following a period of severe weakness.
As you would expect, the stock index is largely based on a few factors: the performance of the U.S. Dollar against the Euro, U.S. Dollar against the Japanese Yen, and the U.S. Dollar against a basket of international currencies. A number of economic indicators and fundamentals are also considered, but it’s generally true that there is no central “stock index” that we can rely upon to keep track of the performance of the U.S. dollar against any particular currency pair.
So what does this mean for you if you’re interested in investing in the stock index? Basically, you need to look at the fundamentals and the economic news and then think about whether or not you want to invest in stocks of companies that have a strong track record, such as Chinese companies, but you also need to bear in mind that there’s not a fixed stock index out there that will accurately predict how the global stock index will behave for the coming months and years. The best way to do this is to look for a company with a strong track record, that offers a good price to book ratio, and that you can use to gauge the extent of the market correction or market volatility in the underlying market. – but you also need to remember that global stock index trading requires lots of homework, due diligence before you can ever really profit from the price action.