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Stock Market Trends
1. "Demutualization"
The Stockholm Stock Exchange paved the way in 1993, the world of bourses has been swept by a wave of “demutualisation”, in which exchanges have become publicly held corporations.
Of the world's five largest stock exchanges, only Tokyo is still owned by its member brokerages.
2. Consolidation
Mergers & Acquisitions....and cross trading platforms. For example, there was a merger in Brazil of the BOVESPA (stocks) and BM&F (commodity futures)....
In addition, the merged stockmarket has an alliance with the Chicago Mercantile Exchange (CME), which is a big shareholder. The tie-up allows a trader sitting in London to buy and sell Brazilian securities through Chicago's Globex trading system...
From the Brazilian perspective, it allows a Brazilian trader wanting to hedge against swings in the price of soya beans, say, can trade in the biggest futures market in the world.
"André Cappon of CBM, a consultancy, reckons that the global exchanges business will eventually by dominated by three or four multinational constellations", says the Economist.com.."In the middle there will be satellites, like Singapore and Brazil. Mexico's best hope for its markets, reckons Mr Cappon, lies north, in a tie-up with one of the exchanges in America."
3. Globalization
Foreign stock exchanges have grown in importance as there has been de-centralization of stock market activity. For example, Mexico's derivatives market has done well, with more peso futures now traded in Mexico than in Chicago.
Question: why is the BOVESPA worth more than the NYSE?
see: how to value a publicly traded stock market
Important Bourses
NASDAQ
The Nasdaq Stock Market, as its name implies, is a United States based stock market. It is currently the largest and most actively traded electronic stock market in the United States with 3,200 listed companies. The NASDAQ competes with other stock markets both locally and internationally to list companies and provide market data. Its biggest competitor is NYSE Euronext (NYX). Recently, in an effort to diversify from their core business model, both the NASDAQ and NYSE Euronext have been purchasing international exchanges. See more...http://en.wikipedia.org/wiki/Nasdaq
NYSE
The New York Stock Exchange (NYSE), nicknamed the "Big Board", is a New York City-based stock exchange. It is the largest stock exchange in the world by dollar volume and, with 2,764 listed securities, has the second most securities of all stock exchanges. Its share volume was exceeded by that of NASDAQ during the 1990s. As of December 31, 2006, the combined capitalization of all New York Stock Exchange listed companies was $25.0 trillion. See more... http://en.wikipedia.org/wiki/Nyse
Important Index's
Dow Jones Industrial Average
see chart: here
Investing Theories:
Negative correlation between USD exchange rates and the Dow Jones Industrial Average.
A hunch occurred to me last night...
Perhaps the run up of stock prices from 2006 to the end of 2007 was directly related to the dollar depreciation that occurred over the same period.
From mid 2006 up till October 2007, the US stock market was on a strong bull run, as indicated by the broad Dow Jones Industrial Average. But, over that same time frame, the US currency was busy depreciating as currency investors grew weary of the weakness of US macroeconomic policy (large ballooning current account deficits, along with federal budget deficits); While in the past, the US had been able to overcome its massive current (trade) deficit by borrowing cheaply from foreigners (especially the Chinese) and thus maintaining a strongly positive capital account surplus; But, with spending on the Iraq war ballooning, and with projections for large federal budget deficits, currency traders began betting on a fall in the US dollar(depreciation vs Euro and other basket of currencies
The question is; if an investor believes that the macroeconomic outlook for a countries policies are not favorable, then what should fall...the stockmarket? The currency? or both? As we saw in the US example, the first to fall was the currency. But, a strange thing happened, and the stock market actually climbed. Why? I believe that there was a very interesting dynamic going on that can explain this phenomenon.
Perhaps the reason that the stock market was up was directly caused by the falling currency value (among other factors). Similar to what we see happen with the dollar-price of a barrel of oil; as the value of the US dollar depreciates in the international markets, then the US Dollar-price of a barrel of oil must increase to compensate for this fall in the dollar. Any commodity that is traded internationally must increase its dollar-price if the value of the dollar were to fall.
My theory is that the US stock market was acting much oil (like any internationally traded commodity), and was rising in value specifically because the value of the dollar was falling.
This can be true if you think of the NYSE as an international market and not just an American one. If the companies listed on the US stock exchange are in fact international enough, and if they gain enough earnings from international customers, companies and investors, then in fact it would be more correct to see the US stock market as an international market, and not as a US one.
If you accept that the market is an international one, and that investors come from around the globe, then it follows that the valuation of an index of the biggest companies on the market might behave as does an internationally-traded commodity. This means that as the US dollar value drops (depreciation), then if the international value of that market were to remain the same, then the nominal US-based value must increase. So, even though the value of the Dow Jones Industrial index (or S&P500) might not actually go up in global terms, it in fact must rise in US dollar terms as the US dollar depreciates.
Following this thought process, I had the theory that the US stock market might have risen specifically because the currency was depreciating. Global investors in global companies listed on a global exchange were seeing returns rise in dollar terms (but maybe not in real terms) because the dollar was depreciating. From the US centric perspective, it appeared as if the market was rising, but with the currency falling, the real returns may have been canceled out internationally.
As an interesting investing strategy....currency investors may have (if they thought of it) used the US stock market as a tool to hedge against a depreciation of the US currency. Because of this inverse correlation between the stock market and the US currency, you might be able to purchase the US market to hedge against potential US dollar depreciation.
This is not to say that investing in the US stock market is so simple as following US currency movements. No, absolutely not. But, I do believe that along with many other factors, it is wise for US based investors to start seeing the US stock market as an international one, and to start considering the effect that global markets, global companies and global investors have on the returns of the US stock market.
In recent months, the US currency has stabilized (within a stable range of 1.525 to 1.6 since March '08 ) against the Euro, and at the same time, we have seen the US stock market fall rather dramatically. Coincidence?
Leading Indicators?
If you accept that the US stock market is in fact internationally focused, and broadly influenced, then it might follow that the S&P500 (or DJIA) is a good leading indicator for global economic health. Where the US currecy may be a leading indicator of macroeconomic trouble for the US, forshadowing US imbalances...the US stock market may also be a good forward indicator of global macroeconomic trouble. Up until early 2008, there was alot of talk of "decoupling" of international markets. As long as that talk prevailed, the stock market seemed to grab higher and higher. But
In this way, the US stock market might not be a true reflection of the strength of the US economy (Federal reserve issues), it may in fact reflect a leading indicator of global economic health.
compared to FX (USD v Euro over 2 years)
Definition of Stock Markets:
A stock exchange, share market or bourse is a corporation or mutual organization which provides facilities for stock brokers and traders, to trade company stocks and other securities. Stock exchanges also provide facilities for the issue and redemption of securities as well as other financial instruments and capital events including the payment of income and dividends. The securities traded on a stock exchange include: shares issued by companies, unit trusts and other pooled investment products and bonds. To be able to trade a security on a certain stock exchange, it has to be listed there. Usually there is a central location at least for recordkeeping, but trade is less and less linked to such a physical place, as modern markets are electronic networks, which gives them advantages of speed and cost of transactions. Trade on an exchange is by members only. The initial offering of stocks and bonds to investors is by definition done in the primary market and subsequent trading is done in the secondary market. A stock exchange is often the most important component of a stock market. Supply and demand in stock markets is driven by various factors which, as in all free markets, affect the price of stocks (see stock valuation).
see more...http://en.wikipedia.org/wiki/Stock_exchange
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