Global stock indexes have captured an exceptionally volatile market for both long-time investors and shorter-time traders alike since 2020, with the spotlight last year almost exclusively on the trade war between the US and China, with both sides claiming the benefits from a more balanced market. This year, however, the pendulum is swinging back in China’s favor and there appears to be less of an emphasis on the American dollar.
Global stocks have performed much better than the other major indexes over the past year or so, largely due to China’s relatively strong performance. But it is not just China that accounts for this positive momentum, with the index for the European Union having declined slightly. Europe also has an economy that is not as closely tied to China as many would expect, and therefore the Chinese are no longer considered a significant threat to the stability of Europe.
There are many explanations why global stock indexes have performed so well, but the main reason is the increase in demand for foreign shares over the last five years. This demand was driven mainly by the fall of the US dollar, which increased the value of other countries’ shares on the world stage. In addition, this growth in demand is attributed to increased access to capital from developing countries. This increase in the availability of capital has meant more trading opportunities, allowing many traders to profit from the movement of exchange rates.
One of the most interesting aspects of this movement, in addition to the fact that China is now emerging as a major player on the international scene, is that it has caused a shift in the makeup of global stock indexes, as it has been a predominantly developed country for a while now. The United States and Europe, for example, have enjoyed a steady growth in their share of the market, thanks to large multinational corporations that often represent a major portion of the overall index. This, in turn, has meant that these economies have retained their place at the top of the chart, even if the US economy and its political influence have taken a major hit over the last several years.
China, however, has seen a rapid rise in its share of the market as it has gained market share in the last few years, with the gap between developed economies and developing countries increasing substantially in recent times. And this shift is unlikely to abate any time soon, as more people become educated about how the US Dollar works, and how to hedge their portfolios against its downfall. China continues to gain ground.
The growing importance of China in the international arena means that there will be a greater need for investors to look for other ways to diversify their investments. Global stock indexes will continue to perform well over the next few years, but that doesn’t necessarily mean that they will stay that way for long. As the effects of globalization continue to affect countries like China, the country will continue to attract investment in more ways other than the stock markets.
If you want to see what will happen to these indexes next, then the best thing to do is to buy and hold some international stocks yourself. But before doing so, make sure you understand what the different global indexes have to offer. It will take some time before the impact of China will be felt, but in the long run it can be a huge advantage to invest in these and other markets worldwide.
The world stock markets will continue to fluctuate based on which way the pendulum swings, and if you are going to trade in any real sense, you need to understand them. For example, the only way to predict exactly how global stock indexes will perform next is to know which country will eventually take control and whether or not the market will continue to perform as strongly as it has recently.