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You must have surely heard the names of some of the most popular global indices like the Dow Jones, FTSE, DAX, CAC, Nikkei, Nifty, Sensex, etc. Do you know what is common to all these names? They are major global indices of stock markets. What are global indices and what do these global indices represent?
Global indices are a benchmark to evaluate the strength or weakness in the overall market in the stock market app. Normally, a sample of highly liquid and valuable stocks from the universe of listed stocks is selected and made into an index. The weighted movement of these sets of stocks or portfolios of stocks constitutes the movement of global indices. So, if global indices are moving up, that means the markets are strong, and if global indices are moving lower, that means global markets are weak. In this section, we look at global indices and also at the global indices market.
You can understand global indices as a hypothetical portfolio of investment holdings that represents a segment of the financial market or the global indices market. The calculation of the index value is derived from the prices of the underlying stocks or assets in the index. Remember, the global indices market consists of stocks, bonds, commodities, etc. Here we will focus more on the global indices market for stocks. There are different ways in which indices can be weighted. For example, in the global indices market, their indices are based on market-cap weighting, revenue-weighting, float-weighting, and fundamental-weighting. Most of the leading global indices in the world typically tend to be market cap and free-float weighted.
Globally, different indices are followed by investors. In the US, the three most popular stock indexes for tracking the performance of the US market are the Dow Jones Industrial Average (DJIA), S&P 500, and NASDAQ Composite Index. The NASDAQ is the OTC market that trades in high technology sectors like IT, e-commerce, biotechnology, etc. Similarly, in bond markets, Bloomberg Barclays is a leading provider of market indexes with the Bloomberg Barclays U.S. Aggregate Bond Index being a popular benchmark. You cannot directly invest in an index so we use proxies like index funds, index ETFs and index futures but we will come back to that later.
We can quickly summarize our understanding of global indices as under:
A quick word on the methodology of global indices
Global indices have their method for calculating the index value that is based on the method approved by their index committee. Weighted average mathematics is primarily the basis for all index calculations. Many indices started as price-weighted indices but eventually shifted to becoming market-cap-weighted to ensure that smaller stocks do not exert an inordinate impact on indices. Similarly, in the modern-day, most of the indices are also free-float weighted. That means while calculating the market cap for weighting, the market cap of the promoter holdings is excluded to give a more precise picture. One argument is that market-cap-weighted indices will be vulnerable to the changes in the price of the largest stocks, but that is the way it should be.
Here are some of the most popular and tracked indices in the world. These are the general indices that give an overall view of the market and also economic robustness.
Index Name | Country | Last Value |
---|---|---|
Global Dow Realtime USD | United States | 4,028 |
Global Dow Realtime EUR | Europe | 3,202 |
S&P 500 Index | United States | 4,352 |
ASX All Ordinaries Index | Australia | 7,587 |
Hang Seng Index | Hong Kong | 28,310 |
S&P BSE Sensex Index | India | 52,485 |
JSX Composite Index | Indonesia | 6,023 |
NIKKEI 225 Index | Japan | 28,783 |
FTSE Bursa Malaysia KLCI | Malaysia | 1,533 |
PSEI Index | Philippines | 7,002 |
KOSPI Composite Index | South Korea | 3,282.00 |
CAC 40 Index | France | 6,553 |
DAX | Germany | 15,650 |
Amsterdam AEX Index | Netherlands | 733.55 |
Oslo Exchange Benchmark Index_GI | Norway | 1,137.00 |
Dow Jones Portugal Index EUR | Portugal | 138.21 |
BIST 100 Index | Turkey | 1,377 |
FTSE 100 Index | United Kingdom | 7,123 |
Tel Aviv 125 Index | Israel | 1,766 |
Data Source: Bloomberg
Do global indices affect Indian indices at all? You would find that it rarely happens that the Dow and NASDAQ are 2% up and Nifty is 2% down. It also does not happen the other way round. There is a clear correlation between the global indices and the Indian indices. The question is why does this correlation come about in the case of global indices? There are several reasons the global indices impact Indian indices.
Most websites like CNBC, Forbes, MarketWatch etc provide real time feeds to track global markets. These are updated with respect to real time rates and returns over different time frames. Today, it is also possible to download the app and track these indices real time on mobile apps. It is a lot simpler too.
Yes you can invest in global markets in a number of ways. It is possible to invest directly in global equities using the $250,000 limit provided for annual outward investment to resident Indians by the RBI. You can also invest in global ETFs that are offered by Indian mutual funds using the Fund of Funds route. For direct global investing, you can directly approach an international broker like Schwab or Ameritrade or you can even go through Indian brokers who facilitate international transactions.
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