Investigating World Financial Markets Essay
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The stock markets in consideration, the Dow Jones Industrial Average (DJIA), the Shanghai Stock Exchange Composite Index (SSE), and the Australian All Ordinaries (ASX-All Ords) are among the major stock markets in the world. The value of these stock markets often gauge the local economy and is considered as the benchmark of economic health within their regions (Kaeppel, 2009). For instance, DJIA is the primary indicator of US economic health. Along with the S&P 500 and NASDAQ, the Dow is a collection of the top 30 industrial and commercial companies in the United States.
The dominant industries in the DJIA range from Banking, Oil and Mining, Heavy Industries, and Food Manufacturing among others. According to Yahoo! Finance for the past couple of years during the global economic recession, the composition of the Dow has changed as it did for the past decades. Particularly, banking giants Citigroup and AIG were replaced in mid-2009 by The Travel Company and Kraft Foods, respectively due to the former’s poor stock performance on the onset of the global recession.
One particular similarity of the stock markets mentioned in this paper is how other markets (SSE & ASX All Ords) were affected by the crisis that started in the United States. The Shanghai Stock Exchange Composite Index was at its all-time high (6000-level) in 2007 but suddenly cascaded downwards to the 4000 level during the global recession. The SSE in recent years has become a significant stock market indicator in Asia along with the Nikkei 225 of Japan and the Hang Seng in Hong Kong.
The Shanghai bourse is divided into 2: Shanghai-A for foreigners and Shanghai-B for the local Chinese. Dominant industries in the SSE are mining and commercial banking. For instance, one of the largest IPOs in the world happened in 2007 during the listing of the Industrial and Commercial Bank of China (ICBC). Another is the Australian All Ordinaries which is on a league of its own. It is considered to be the primary bourse of the Australian market and is usually classified together with the Asian markets due to proximity.
The ASX has been known for in the past due to its mining and rubber industries. The ASX of today however is dominated mostly by food manufacturers and commercial banking while mining industries still contribute significant amounts of trade volumes. On the other hand, this paper will also look into the bonds market through the JP Morgan Global Bond Market-All Maturities which are government issued IOUs which a government usually guarantees to pay on a specified amount of time.
Usually issued as 5-10 year bonds, the bonds market are resistant to bankruptcy and default since the government guarantees it in a long period of time. Cross-Market Comparisons The performance of the stock markets around the world has suffered a lot for the past two years due to the global economic crisis. Several banks and industries filed for Chapter 11 bankruptcy and sought for their governments to intervene (Selden, 2010).
On Figure 1 below, the US market in general was already on a downward direction even before the worse of the global crisis. This was due to the fact that defaults on the US Housing market was heavily affecting investor sentiments and the uncertainty of the then incoming US presidential elections was leading the markets down. With the DJIA as one of the benchmark indices for other markets in Europe and Asia-Pacific, the SSE and the ASX also were on a minor down shift.
This worsened when the American company Lehman Brothers which is a century-old company in the US filed for bankruptcy on September 2008 prompting panic on Wall Street and around the world. News stories of companies with large defaulting accounts sent shockwaves in other markets causing bear markets around the world as reflected on the graph. A slight recovery was seen on March of 2009 when newly sworn US President Barrack Obama agreed to bail out Wall St and provided Bailout packages to Citigroup and the US Auto Industry.
On Australia, the market also reacted positively over the acquisition of BHP Billiton of Rio Tinto in late 2009 ending a series of sour negotiations in the previous year. China was also able to prove that it was resistant to the worse of the financial crisis and was still able to compensate for its 11% inflation for 2008. The local Chinese economy was also saved by the revenues from the 2008 Beijing Olympics as well as other industries who are still eager to invest in China all the more in order to reduce costs.