8.4.4 International Market Indexes And Averages

Introduction

As the economy becomes more global, it makes sense for investors to diversify their equity portfolios by investing not only in various industries and stocks but also in different countries. As the economies of more and more countries mature, their equity markets grow in size and sophistication, making it easier for foreign investors to enter.

Prominent International Market Indexes

Most funds that invest outside Canada prefer the large, liquid global stock markets. Some of the most noted global stock markets and their indexes include:

Nikkei Stock Average

This is the Tokyo Stock Exchange average. It is calculated in a manner similar to the Dow Jones (225) Price Index average and is updated every 15 seconds. The index is well-known both inside and outside Japan.

FTSE 100 Index

This index consists of the 100 largest listed companies on the London Stock Exchange and is one of the most widely followed indexes in the United Kingdom. It is calculated using the market capitalization of the stocks and is recalculated on a minute-by-minute basis.

DAX Performance Index

The DAX consists of 30 major Frankfurt Stock Exchange blue-chip stocks and is the most widely followed index on the German securities market. The index is weighted by market capitalization, and dividends and income from subscription rights are reinvested into the index.

CAC 40 Index

The CAC 40 Index is based on 40 of the largest 100 companies listed on the Paris Stock Exchange. It is calculated on a market capitalization basis.

Swiss Market Index (SMI)

The Swiss Market Index (SMI) is Switzerland’s blue-chip index, making it the most important in the country. The index comprises 20 of the largest and most liquid stocks on the Swiss market, ranked by market capitalization.

Emerging and Riskier Markets

In the past 25 years, interest has developed in riskier, more exotic markets such as those in China, India, Turkey, Sri Lanka, Taiwan, Korea, and Mexico, which also have their own unique stock indexes.

Key Terms & Definitions

Nikkei Stock Average: A stock market index for the Tokyo Stock Exchange, similar to the Dow Jones Industrial Average in the United States.

FTSE 100 Index: A share index of the 100 companies listed on the London Stock Exchange with the highest market capitalization.

DAX Performance Index: A stock market index consisting of 30 major German companies trading on the Frankfurt Stock Exchange.

CAC 40 Index: A benchmark French stock market index representing the 40 largest companies on the Paris Stock Exchange.

Swiss Market Index (SMI): An index of the 20 largest and most liquid companies traded on the Swiss Exchange.

Key Takeaways

• Diversifying equity portfolios by investing in different countries helps mitigate risk and potentially increases returns.
• Prominent international market indexes include the Nikkei, FTSE 100, DAX, CAC 40, and SMI.
• Emerging markets offer growth potential but also come with increased risk.
• Understanding the index methodologies, market capitalizations, and specific characteristics of international indexes is crucial for informed investment decisions.

Frequently Asked Questions (FAQs)

Q: Why should investors consider investing globally?

A: Global investments provide diversification, access to growing markets, and reduced risk by spreading investments across various international economies.

Q: How is the FTSE 100 Index calculated?

A: The FTSE 100 Index is calculated using the market capitalization of its constituent companies, which are recalculated on a minute-by-minute basis.

Q: What defines a “blue-chip” stock?

A: “Blue-chip” stocks are large, reputable, and financially sound companies that are leaders in their respective industries.

Q: What are the risks associated with investing in emerging markets?

A: Emerging markets can exhibit higher volatility, political risk, and lesser regulatory standards, which can lead to greater investment risk.

Charts & Diagrams

    graph TD
	    A[International Market Indexes]
	    A --> B[Established Markets]
	    A --> C[Emerging Markets]
	    
	    B --> D[FDax]
	    B --> E[Nikkei]
	    B --> F[FTSE 100]
	    B --> G[CAC 40]
	    B --> H[SMI]
	    
	    C --> I[China]
	    C --> J[India]
	    C --> K[Turkey]
	    C --> L[Sri Lanka]
	    C --> M[Taiwan]
	    C --> N[Korea]
	    C --> O[Mexico]