TradingKey - Amidst the backdrop of economic globalization, the interconnectedness of global equity markets has amplified the ripple effects of economic events. International stock investing holds strategic importance today for two primary reasons.

Portfolio Diversification:

Divergent economic cycles, industrial compositions, and regulatory landscapes across regions create asynchronous market performances. For instance, while U.S. equities may falter due to tech sector volatility, European markets could remain resilient supported by robust manufacturing activity. By allocating capital across geographies, investors can effectively dampen single-market risk and achieve portfolio stabilization.

Growth Opportunities:

Emerging markets such as China, India, and Brazil offer asymmetric growth potential driven by rapid economic expansion and demographic dividends. Participation in these markets provides exposure to high-growth sectors and innovative enterprises positioned to capitalize on structural trends. Additionally, global equities afford access to cutting-edge technologies and industry-leading companies, enabling investors to capture long-term value creation.

There are various ways to invest in the international stock market, allowing investors to choose methods that align with their circumstances.

• One convenient option is the Qualified Domestic Institutional Investor (QDII) fund, issued by domestic fund management companies. This approach allows investors to entrust their funds to fund managers for overseas investment operations. The advantages are clear: it lowers barriers to entry, diversifies risk, and reduces transaction costs. For example, an investor who is optimistic about the overseas technology sector but lacks knowledge of the international stock market can invest in relevant QDII funds to gain exposure.
• Opening an overseas securities account provides direct participation in international stock market trading, offering greater autonomy. Taking the U.S. securities account as an example, one needs to choose a reputable brokerage and prepare identification and address verification documents to apply. Once the account is established, funds can be wired for trading. However, this method has higher requirements, with a complex account opening process that necessitates a study of various regulations in different countries, and trading fees can also be significant.
• Investing in cross-border financial products is another avenue. For instance, banks may issue financial products linked to international stock indices. The returns on these products are associated with specific international stock market indices, allowing investors to participate indirectly. However, such products can be complex, and investors should carefully study the product terms and assess the creditworthiness of the issuing institutions to mitigate risk.

Types of Global Stock Markets

Global stock markets can be broadly categorized into developed markets, emerging markets, and frontier markets, based on factors such as economic development level and market maturity. Each category exhibits significant differences:

Developed Markets

Developed markets have a long history and a well-established financial system. A prime example is the New York Stock Exchange, which originated from the Buttonwood Agreement in 1792 and has evolved over more than two centuries into a market with highly mature trading rules and regulatory frameworks. These markets are characterized by stability, relatively predictable investment returns, and the ability to provide investors with stable dividend income.

Emerging Markets

Emerging markets are characterized by rapid economic and capital market development. While these markets offer greater growth potential, they also come with increased risks, including political instability and less mature financial systems. Leading emerging markets encompass Brazil, India, China, and South Africa.

Frontier Markets

Frontier markets, often referred to as pre-emerging markets, consist of countries in the early stages of economic development. These markets include nations such as Argentina, Bangladesh, and Kenya, which present significant growth opportunities and potential for early investments. However, they often lack market depth, making liquidity difficult, and are subject to high political and economic uncertainties. In some instances, political conflicts may lead to market closures, creating challenges in capital withdrawal.

Overview of Major Exchanges

Americas Region

New York Stock Exchange (NYSE) – USA

NASDAQ Stock Market (NASDAQ) – USA

Europe Region

London Stock Exchange (LSE) – UK

Frankfurt Stock Exchange (FWB) – Germany

Asia Region

Tokyo Stock Exchange (TSE) – Japan

Shanghai Stock Exchange (SSE) – China

Hong Kong Exchanges and Clearing Limited (HKEX) – Hong Kong, China

Bombay Stock Exchange (BSE) – India

Oceania Region

Australian Securities Exchange (ASX) – Australia

Africa Region

Johannesburg Stock Exchange (JSE) – South Africa

Economic Indicators

Economic data such as GDP growth rates, unemployment rates, and inflation rates serve as direct reflections of economic performance and are key indicators for the stock market. For instance, GDP growth rates indicate the overall economic expansion of a country or region. A higher GDP growth rate suggests economic growth, leading to increased sales and profits for businesses, which typically results in a rising stock market. Conversely, a declining GDP growth rate signals potential recession risks, prompting adjustments in the stock market.

Political Activities

Political events, policy changes, and tensions in international relations can significantly affect the stock market. For example, election results may alter government policy directions and affect industry prospects. If a party that advocates increased infrastructure investment comes to power, the stocks in related sectors may gain favor. Policy changes can have direct implications for corporate costs and profitability; for instance, an increase in tobacco tax could lead to a decline in stock prices for tobacco companies, while policies encouraging renewable energy can boost a rise in the share prices of related enterprises. Tensions in international relations, such as trade wars, create concerns about global economic growth, which impacts multinational corporations. During the U.S.-China trade tensions, companies involved in import-export businesses faced challenges, causing their stock prices to decline and triggering broader declines in the global stock market.

Unexpected Events

Natural disasters and pandemics can disrupt production and create supply chain issues, significantly affecting the stock market. Events like earthquakes and floods can damage production facilities and infrastructure, leading to production interruptions. For instance, the Fukushima nuclear disaster in Japan resulted in halted operations for local businesses, causing stock prices to plummet and impacting global supply chains. However, post-disaster reconstruction can present investment opportunities, potentially benefiting stocks in the construction sector. The impact of pandemics on stock markets is profound and extensive. The COVID-19 pandemic severely disrupted the global economy and caused significant stock market volatility. Restrictions on travel and consumption greatly affected industries such as tourism and aviation, leading to sharp declines in airline stocks.

Market Sentiment

Market sentiment is another critical factor influencing stock prices. Investor perceptions and emotions can drive market trends, often resulting in volatility. Geopolitical events, economic crises, and health emergencies can alter investor confidence, prompting reallocations in investment portfolios. For example, during the COVID-19 pandemic, widespread pessimism among investors led to extreme market reactions, causing substantial declines across multiple industries.