Investors use stock market indices to judge the market condition and compare the performance of their portfolios. Global stock market indices perform that task for global financial markets.
What are Global Stock Market Indices?
Stock market indices are indexes that track the group of listed stocks and represent the overall stock market performance. Similarly, global stock indices are those indexes that track various stocks listed in different stock markets and reflect the performance of the global stock market.
Global stock market indices act as benchmarks against which the performance of a particular stock market can be measured and compared. The values of global stock indices can be computed based on the stocks they constitute. The rise in the value of global stock market indices suggests the strength of global markets and vice versa.
Various weighting indices exist, such as market-cap weighting, revenue weighting, and price weighting. However, usually, global stock indices are market-cap or free-float market-cap weighted. The key difference between full market cap and free-float market cap is that the free-float market cap excludes shares privately held, i.e. held by promoters, group companies, government trusts, etc. Thus, it gives the investors an idea of shares they can freely trade.
The global indices constitute various financial securities like stocks, bonds, commodities, etc. A few examples of global stock market indices are Dow Jones, Nikkei, FTSE, etc. For global index funds and ETFs, global indices are underlying indexes.
Example of Global Stock Indices
The MSCI world index, introduced in 1986, is one of the global stock indices. It constitutes large-cap and mid-cap stocks from 23 countries and covers 85% of the free-float market capitalisation in each country. Some of the countries it covers include Australia, Belgium, Canada, Denmark, Singapore, the UK, the US, etc.
Here is the list of the top 10 global indices with their codes and belonging countries.
|3||Hang Seng Index||HSI||Hong Kong|
|5||Dow Jones Industrial Average||DJI||USA|
|9||Euro STOXX 50||SX5E||Eurozone|
Impact of Global Indices on the Indian Stock Market
Some global indices, such as Dow Jones, Nasdaq, etc., are significantly correlated with Indian stock market indices such as Nifty 50 and Sensex. Here are some reasons behind it:
- Investors keep track of global market trends and consider them to make investment decisions which tend to impact the Indian stock market indices.
- Some Indian companies might also have businesses in other countries and may be listed on multiple stock exchanges worldwide. Their performance in one stock market may also impact their performance in others.
- Foreign investors who invest in the Indian stock market may also be investing in other countries stock markets. Therefore, their decisions are likely to be coordinated. For instance, a loss in one stock market may force them to make a profit from other markets.
- Foreign investment inflow and outflow significantly impact Indian currency value against other currencies, ultimately impacting the value of stock market indices.
- Economic policies of countries can also be another reason for the correlation of the Indian stock market with other stock markets. This is because Indian businesses are highly connected with businesses in other countries in the ways of imports and exports. For instance, if the US levies additional import duties on textile products, textile exporters in India may see a drop in stock prices.
- The Fed announcements on interest rate hikes or falls may impact Indian banks’ share prices, which have higher weightage in stock indices. The impact of changes in global Brent Crude prices may also be reflected in the share prices of Indian oil companies.
- Some Global index funds and ETFs invest in emerging economies such as India, Korea, Brazil, etc., which results in the coordination of indices in emerging markets.
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Frequently Asked Questions
Yes, you may consider purchasing stocks from the international stock exchange or investing in global mutual funds, exchange-traded funds, American Depository Receipts, etc.
Yes, some indices exist that constitute companies from various countries across the globe. Some examples of such world stock market indices are FTSE All-World Index, MSCI World Index, The Global Dow, etc.
The 3 most popular stock indexes are the S&P 500, Dow Jones Industrial Average, and Nasdaq Composite.
Stock markets of Japan and Australia open first, at 5:30 am, as per Indian Standard Time.
Sensex, Nifty 50 and Nifty Bank are India’s major stock market indices.
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