In recent years, Global stock indexes have captured a very volatile political environment for global investors and both short-term and long-term investors alike, as the spotlight last year largely turned to the ongoing trade dispute between China and the United States. But the ink wasn’t quite dry on the so-called “golden phase” trade agreement between these two countries… Instead, in June of this year, President Trump signed an executive order that included a requirement for Chinese companies to invest in U.S. infrastructure projects. At this point, the question became whether or not China would respond in kind.
With China now playing a critical role in the U.S. economy, it stands to reason that they may be looking to capitalize on the new trade agreement and the resulting increased access to American consumers. In fact, there are already some signs of a possible deal coming into play. In September, Chinese officials and representatives met with representatives of financial institutions, and in response, the New York Stock Exchange announced that they would begin trading in U.S. stocks on Monday, October 1st.
This is a major move for the stock indexes and one that could lead to an enormous boost in profits for the investing public. The Shanghai Stock Exchange (the country’s largest, by market capitalization) has already announced that it would be moving its index to the American Stock Exchange (NYSE) by October 1st. If and when China does follow through with their promise, they will join the other major stock markets in the world, including the NYSE, Tokyo Stock Exchange, London Stock Exchange, and even the Chicago Board of Trade (CBOT) on the first day of trading. Of course, no matter how big China’s market is and how quickly they move, the U.S. stock market still remains the world’s largest, as well as the most volatile. So while a few days in the spotlight could be lucrative for those looking to invest in stocks, it is also important to know that it is also important to understand when to sell and when to buy.
For many investors, the idea of investing in a global index means being able to trade shares of U.S. companies, such as ExxonMobile and McDonald’s, regardless of what country they are located in. Global stock indexes allow a global investor to diversify across multiple countries and different industries and therefore potentially gain a better overall return than investing in just one country. One of the biggest draws to trading global stock is the ability to diversify across multiple markets, which countries. However, not all stock markets across the world offer similar benefits. For example, many of the most well known U.S. companies, like ExxonMobile, McDonald’s, and Microsoft, offer shares in a number of countries, but they typically only have limited access to these markets.
A global index gives you the freedom to invest in a variety of international markets without having to worry about what the outcome of a stock’s performance will mean in one country. And because of the lack of localized effects, the market has the potential to stay in one country even if there is a drastic change in one country’s government and economic climate.
Some international stock indexes, such as the Shanghai Stock Exchange (or the NASDAQ for short) can be purchased on day one after being approved by the Securities and Exchange Commission. Because the Chinese are still in the early stages of setting up their own market, they are not yet allowed to use the trading system that most of the major U.S. stock exchanges employ. So, for investors looking to take advantage of global stock indexes, it will still be up to the new administration to regulate the market before it can gain full access to all of the major U.S. markets.
In contrast, global stock indexes were introduced in the U.S. in the 1970s. This means that the rules and regulations have been in place from the beginning and remain largely the same today. These rules include minimum initial share values of at least $5 and the use of trading systems that use computer technology that allows them to be operated from a remote location. This technology makes it easier for companies to sell and purchase shares across borders with ease. and confidence, which gives an investor greater access to companies like McDonald’s in one country but not in another. This helps investors avoid the pitfalls of buying stocks based on news reports, but is also good for avoiding stocks based on rumors or projections.
There are some downsides to investing in global stock indexes. One of these is that it may be more difficult to take advantage of company growth, especially in developing countries, such as China and India, where the population growth is growing at a very fast rate. Also, there is a chance that a company will fail to experience enough growth in the first few years to warrant a high share price in the U.S., which could put it out of commission for a long time. The success of global stock index investing may also depend on how quickly the stock market changes in other countries, which also affects how the prices move in those countries.