Global stock indexes have caught a very volatile environment recently for both long-term investors and short term traders, with the spotlight in late 2021 turning more to the global trade war between the U.S. and China over trade barriers. Since then the stock markets across the globe have continued their recovery from these troubled times. The Asian market continues to be volatile, and although Europe and the U.K. have also shown signs of improvement recently, many analysts are warning that investors need to be cautious as the potential for government action and protectionism looms large. So what exactly are the pros and cons of investing in global stock indexes?
One of the main advantages of investing in global stock indexes is that they offer a very simple methodology for trading, namely that of the day-to-day price changes of stocks within a relatively short period of time. This means that investors don’t need to master a complex number of mathematical algorithms or analytics in order to determine which stocks are good buys and which ones should be avoided. Global stock indexes are based solely on real-time information which is easy to interpret. They have no biases in their data, meaning that investors can quickly and accurately determine which stocks are making money and which ones aren’t. This science-based approach to investing also makes them ideal for those who want to be actively involved in their portfolio.
Unfortunately there are some major disadvantages to investing in international stock indexes. For example the 2021 financial crisis saw China massively devalue its currency, sending its export values tumbling and causing millions of Chinese investors to flee the country. Consequently when the global economy suffered a setback, many governments imposed import tariffs on goods from China, forcing many Chinese industries to close down, and the Shanghai composite index began to plummet.
In the months following this, as the global economy slowly recovered, the value of the Chinese stock market began to recover. However, the economy of China was still shaky, and many experts believed that a major crash was imminent. It certainly did not help that by the end of the year there were rumors that the government would introduce a new stock market index, known as the March Market, to replace the now redundant Global Stock Index. The new plan was supposed to increase liquidity in the markets, provide more reliable information about China’s economy, and stimulate international trade. While these hopes were realized somewhat, investors were quick to note that the new system didn’t actually make a lot of sense.
First of all, experts noted that it was extremely difficult to predict exactly where the Chinese government would make its move. Even if they did introduce a new index, which was supposed to be based on real-time information from Chinese officials, they wouldn’t necessarily do so through the use of the Global Stock Screener on the official Chinese stock exchanges. Instead, the government made use of a special type of market indicator called chart resistance, which essentially makes it easy for them to make the moves that they want without having to worry about other investors noticing the changes in their moves. What’s interesting about this is that the government’s decision was met with widespread criticism from various international brokerage firms. Many were quick to point out that this simply demonstrated the fact that no one really knows where the Chinese government is leading the economy.
Now that China has effectively implemented its own system for monitoring the Chinese stock markets, many foreign investors are wondering what will happen next. If the Chinese government is successful in stabilizing the markets and ensuring that they maintain higher growth rates than they have in the past, it is likely that the stock markets will begin to retrace their growth rates from recent years. However, if they fail to take this course of action, investors may once again begin to anticipate a major crash. At this point, many traders and critics alike believe that the best course of action for traders is to simply remain invested in China’s markets and wait for things to stabilize themselves.
This brings up another point that many investors tend to overlook: timing is a crucial factor in determining whether or not you make money in the stock markets. By that, we mean determining when you purchase your shares. No matter how strong the Chinese economy is right now, it is entirely possible that economic and social problems in China and other Asian countries will continue to affect the stability of the global economy over time. Therefore, by buying your shares before China suffers any major negative events, you can potentially enjoy a nice gain on your purchase of stocks.
On the flipside, if China does experience something major, like a major pandemic outbreak, then you can expect the price of global stock indexes to drop significantly. At this point, traders will have to decide whether it is in their best interest to sell their shares and take a long position in the hopes that the Chinese government will be able to stem the tide of the pandemic. If the pandemic turns out to be a minor issue, it is still possible to make a profit on your purchase of shares. However, it would be wise to remain bearish on the Chinese economy all throughout.