Ever since India opened up its economy in 1991 Indians throughout the country gained access to foreign products and services. This access however was not only limited to the products and services.
With a rise in retail investors looking to take part in the stock market, there has been a significant interest to invest in US stocks.
In this article, we take a look at the various stock markets around the world. In addition to this, we also take a look at some important factors to consider before investing in the international stock market.
Keep Reading to find out!
Table of Contents
Stock Markets Around the World
The roots of the Indian stock market go way back to 1875 through the Bombay Stock Exchange. The stock market craze however began only in the 90s.
But unfortunately for investors, they had to navigate through several inherent limitations of the stock market. After suffering multiple scams the Indian stock markets have evolved to become not only one of the largest but also one of the most advanced markets in the world.
India has 2 major stock exchanges namely the National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE). But these stock exchanges have begun crossing borders.
The Indian stock market is known as an emerging market and is invested in because of its possibility to offer good growth prospects. Other stock markets around the world may be preferred for various reasons like maturity, low volatility and returns.
Some of these exchanges were founded even before the BSE. The New York Stock Exchange (NYSE) goes way back to 1792 whereas the Tokyo stock exchange was established in 1878.
Major Stock Exchanges Around the World
| Region | Stock Exchange | Index | MCAP ( Trillion US Dollors) - 2021 | Year Founded |
|---|---|---|---|---|
| USA | New York Stock Exchange | Dow Jones | 26.2 | 1792 |
| USA | NASDAQ | NASDAQ-100 | 22.11 | 1971 |
| China | Shanghai Stock Exchange | Composite Index | 7.62 | 1990 |
| Europe | Euronext | Euronext 100 | 7.17 | 1602 |
| Hong Kong | Hong Kong Stock Exchange | Hang Seng | 6.81 | 1891 |
| Japan | Japan Exchange Group | Nikkei - 225 | 6.6 | 1949 |
| China | Shenzhen Stock Exchange | SZSE Component Index | 5.59 | 1991 |
| UK and Italy | London Stock Exchange | FTSE | 3.8 | 1801 |
| Canada | TMX Group | S&P/TSX 60 Index | 3.16 | 2008 |
| India | National Stock Exchange | Nifty | 3.1 | 1992 |
| India | Bombay Stock Exchange | Sensex | 3.1 | 1875 |
| South Korea | Korea Exchange | KOSPI | 2.33 | 1956 |
| Switzerland | SIX Swiss Exchange | SPI | 2.25 | 1850 |
Things to Consider Before Investing in the International Stock Market:
Portfolio Diversification
Generally, novice investors diversify their stocks across asset classes, different market capitalization and sectors.
But thankfully we are in 2021 where investors can also diversify across countries giving them access to different stock markets.
The biggest reason to invest across different markets in various countries has been to protect one’s portfolio against domestic country-specific risks and other local emergencies.
Changes in the Indian political and economic environments would lead to adverse impacts on its markets. Investing across different markets protects investors from these risks.
In addition to this, the international market, namely the US has lesser volatility in comparison to the Indian stock markets. This further protects investors from domestic volatility.
One of the best examples to understand why this is beneficial would be the pandemic crash of 2021. Indexes around the globe suffered a fall ranging from 20%-40% with the US S&P 500 falling by 31.8% and the Indian index Nifty 50 falling by 33.27%.
An important observation here is the time taken by the markets to recover. The Indian markets took 9 months to recover to previous levels by November 2020.
The US markets on the other hand took only 6 months to recover i.e. by August 2020 to touch previous highs. A well-diversified portfolio across global markets would have given investors these benefits.
Currency Benefits
Another factor that comes into play when investing in markets around the world is the currency and their respective currency rates.
It is no hidden secret that the Indian currency has been on a steady decline to the US dollar for several decades now. It would make sense to invest in the American currency to enjoy the gains made as the Indian rupee gets weaker.
But instead, investors can take further advantage of this strategy by taking it up a notch by investing in US stocks.
This allows your investments to grow through American companies, allows you to enjoy dividends and also further gives one the benefits of the US$ getting stronger.
This is evident from the fact that the US$ has grown by 10% in comparison to the Indian currency getting weaker over the last 5 years.
Access to a Broader Range of Companies
Thanks to globalisation, today we have access to various products and services. This is also evident when it comes to stocks.
One does not have to stop at just drinking coke and Pepsi but also can go ahead and own a portion of the company from India.
The US market gives investors access to global giants which make some Indian market leaders look like midcap stocks.
This is however not only limited to blue-chip stocks. The Indian regulatory environment makes it necessary for Indian startups to first show proof of 3 years of profitability before allowing them to list in the stock market.
Indian markets are known to have more stringent rules and regulations in comparison to their global counterparts. These regulations are more relaxed in the US allowing investors to be part of an innovative startup’s growth story.
Research and Efforts
Investing requires tons of research before arriving at the decision to invest or not. As Indians investing in the local market, we have access to tons of research and are accustomed to its functioning and trends.
Investing in global markets adds to the research required and investors have to adapt to different markets. Investors now have to research multiple economies too.
Traders on the other hand also have to adapt to the timings. Hence investing in the international stock market takes up a lot more research and effort.
In Closing
When it comes to investing across stock markets across the globe each one has its own pros and cons and investors. Investors must take these into consideration before investing in international markets.
There are various apps like Groww, Vested etc. that allow you to invest in US stocks. We hope this article helped you to have a better understanding before diving into the international stock market.
Let us know what you think about investing in the international stock market.
Aron, Bachelors in Commerce from Mangalore University, entered the world of Equity research to explore his interests in financial markets. Outside of work, you can catch him binging on a show, supporting RCB, and dreaming of visiting Kasol soon. He also believes that eating kid’s ice-cream is the best way to teach them taxes.
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