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FutureStarrLondon Markets Finish Trading Higher But Outperformed by European Rivals
London markets ended trading higher, outperforming their European rivals due to a weakening sterling that helped boost UK shares. The Stoxx 600 index ended the day 0.5 per cent higher.
Europe's export-heavy FTSE 100 index closed 0.4 percent higher on Wednesday, but data showing euro zone inflation remains stubbornly high fuelled concerns about potential rate hikes from the European Central Bank.
The FTSE 100 is one of the world's most beloved stock market indices, and its performance is closely followed by investors. Furthermore, it serves as a reliable reference point for many economists and financial specialists.
The Financial Times Stock Exchange, commonly referred to as FTSE, is a market capitalisation weighted index that measures the performance of large companies listed on the London Stock Exchange. Established in 1984, it includes the top 100 companies by market cap.
To become part of the FTSE index, a company must meet certain criteria. It must be public limited and listed on the London Stock Exchange; additionally, it needs to meet minimum liquidity requirements for inclusion into the index; most importantly though, it must rank among the top 100 companies by market capitalisation.
The FTSE 100 index includes some of the world's biggest companies, such as Shell, AstraZeneca, Unilever, HSBC and Diageo. Together these five firms make up more than 30% of the index's value; their share prices significantly influence its performance.
Though the FTSE is one of the world's most beloved benchmarks, its value doesn't always accurately reflect your portfolio's performance. Funds invest according to a specific benchmark they select; for instance, AXA WF Framlington UK outperformed Legal & General UK Index fund over four years in comparison.
In this instance, an active manager has taken a longer-term view of their benchmark than simply following it closely. Therefore, the former is likely to be more profitable in the long run.
One way to trade on the FTSE 100 is through CFDs, which let you trade on price movement as it occurs. These contracts can be opened and closed during regular trading hours, making them a convenient way for investors to profit from market movements.
On Tuesday, London markets finished higher but were outperformed by their European rivals. The FTSE 250 was one of few indices to rise this week; however, it remains down around two per cent year-to-date in September.
The FTSE 250 index comprises the 101st to 350th largest companies listed on the London Stock Exchange (LSE). It's a capitalization-weighted index, meaning it measures a company's size based on how much its shares are worth in the stock market.
The composition of the index is reviewed quarterly by provider FTSE Russell, and any companies which fall below a certain market cap are removed from the index while others may be promoted in what's known as a reshuffle process.
Some FTSE 250 members are promoted to the FTSE 100, while others are demoted to the FTSE SmallCap index. These adjustments are determined by company valuations and FTSE Russell's analysis of each firm's performance.
Many fund managers and investors view the FTSE 250 as a more accurate gauge of UK economic health than the FTSE 100, since it comprises companies whose majority of revenues come from operations within Britain. On the other hand, the FTSE 100 contains more international firms that are not primarily British-based.
The FTSE 250 tends to have less exposure to energy, a major component of the FTSE 100's overall weighting. Indeed, approximately three quarters of earnings for index constituents come from non-UK activities.
Over time, the FTSE 250 has performed better than its larger counterpart. Over the past two decades, for instance, it has gained a total return of 286% versus 70.1% for the FTSE 100, and paid higher dividends too.
If you want to forecast how the FTSE 250 will perform, investing in a tracker fund which tracks the index is your best bet. These tend to be cheaper than buying individual shares of each constituent company on the FTSE 250 list; however, be sure to update your portfolio regularly as companies enter and leave the index.
The German stock index (DAX) tracks the performance of 30 major and actively traded German companies. This includes globally-recognized brands like Adidas, Bayer and Volkswagen.
The DAX is Germany's largest stock market index and its performance serves as a crucial barometer for investors. Comprising 80% of total market capitalization of member corporations, it has become widely regarded as one of the world's most influential indexes.
Its index value is calculated every second, using prices from the electronic trading system Xetra. The index utilizes a free-float method which excludes locked-in shares such as those owned by company executives.
To be listed on the DAX, a company must meet certain criteria. These include an existing listing on the Frankfurt Exchange, continuous trading through Xetra, minimum free-float, legal headquarters or operating headquarters in Germany and audited Annual Financial Report, half-yearly financial reports and quarterly statements.
Since 1988, the DAX has been an indispensable guide for investors. Its members are large and successful, exerting considerable influence over both German economic policy as well as global markets.
The DAX index is heavily influenced by factors such as the European Central Bank's monetary policy, economic growth in the Eurozone and currency exchange rates. When rates remain near zero, they make the euro more expensive against other currencies. Recently, however, there has been evidence of European economic slowdown which could further contribute to its depreciation against other currencies.
Another factor that can affect the DAX index is individual company performance. For instance, VW's share price rose during the 2008 financial crisis when they took advantage of a short squeeze - when cover purchases cause prices to increase.
Similar to SAP's share price spike during the 1999 NASDAQ technology bubble when they experienced an unprecedented surge in revenue. Furthermore, changes to corporate strategy or mergers and acquisitions can affect a company's performance on the DAX index.
Trading on the DAX with CFDs is an efficient and convenient way to invest in assets without owning any of them. You may also combine CFDs and ETFs for portfolio diversification.
On Friday, London markets ended trading higher and outperformed their European rivals. The FTSE 100 index, composed of 100 of the world's biggest companies, ended up up 0.2% for the day; similarly, the pan-European Stoxx 600 index also gained ground.
In the last year, the FTSE 250 index for UK medium-sized companies dropped around 17% below its 2016 low and into negative territory. It has been an incredible reversal in fortunes for London Stock Exchange which in 2016 had a market capitalization of approximately $1.4 trillion more than Parisian rival.
France is home to some of the biggest corporations on Earth, with its CAC 40 index featuring some of the biggest names worldwide. One such giant is Airbus - one of aviation's leading manufacturers.
As with other major national indices, the CAC 40 fluctuates due to economic and financial influences. Its composition is determined by the free float adjusted market capitalization of its top 40 companies listed on Euronext Paris.
It is also heavily affected by commodity prices, such as oil and gas, which have experienced a sharp drop this year. This has had an especially detrimental effect on oil giant Total, one of the largest companies by market cap in the CAC 40.
Many of the top companies in the CAC 40 are multinational, meaning they operate across multiple countries. As a result, they're highly vulnerable to external shocks that affect both European and global economies.
COVID-19, the deadly coronavirus currently spreading across Europe, has had a major impact on the CAC 40 index over the last few weeks. The epidemic's spread slashed profit expectations for several large companies included in the index and caused an abrupt decrease in its value as well.
However, other major influences can impact the CAC 40 and its price. These include France's economic environment and politics within Europe as well as any external events which might impact certain sectors of the economy.
Latin American stocks have been the best performers among emerging markets this year, and Morgan Stanley expects some names to post strong gains in the near future.
The region appears to have recovered from both the pandemic and Russia-Ukraine war, with economic growth remaining above long-term averages and profitability improving.
Brazil's stock market, the Bovespa, surged on Friday as investors welcomed a rebound in China. The index was up 0.9% at midday, positioning it for modest weekly gains as the real declined, undermining regional currencies.
The Bovespa index, which tracks 84 companies, is one of the world's largest emerging markets. With low valuations and strong commodity prices, Brazilian stocks remain an attractive option for investors looking for alpha in an increasingly volatile world.
However, Jair Bolsonaro - a right-wing nationalist - has caused alarm in some quarters. Analysts believe he will less likely support progressive policies than his predecessor Lula da Silva did.
Bolsonaro has promised to reopen state-owned companies and increase social programs, but he also wants to reduce taxes and impose tougher regulations on foreign firms. Investors may be worried whether Bolsonaro's conservative approach will damage the country's economy.
However, Bolsonaro's conservative economic policies could potentially strengthen the Brazilian economy if he succeeds in reforming some of the nation's labor laws. His proposal to cut corporate tax rates by half will encourage business investment and expansion.
Furthermore, Bolsonaro has pledged to combat inequality and hunger. This should contribute to economic growth - a major driver of the Bovespa - as well as increase investor confidence in Brazilian stocks.
Though the Bovespa index has gained more than 4% this year, it should be remembered that it has been rising steadily since mid-2015. This has been the longest bull market in Brazilian history and appears likely to continue.
The Mexican peso, a major exporter to the US, has become one of Latin America's most reliable currencies due to its close relationship with the United States and dependence on strong economic growth. Recently, however, its stability has waned due to currency depreciation due to globalization pressures.
According to BNamericas, other emerging market currencies like the South African rand and Turkish lira have experienced substantial depreciation over the past few years, prompting some investors to sell off. This has ultimately caused Mexico's currency to appreciate in value.
Thus, some have pondered if it would be worthwhile to bring back any leftover pesos from their travels. While you can get decent conversion rates from some of the larger banks, this might prove challenging for those planning a longer journey.
The peso is an attractive currency to use while in Mexico, boasting one of the world's most liquid currencies that trades 24 hours a day and five days a week - making it a popular choice among international investors.
Another advantage of the peso is its capacity to adjust according to oil prices. Being a major oil producer, Venezuela boasts substantial reserves that make it an ideal currency in times of high energy costs.
Furthermore, the peso is one of the few countries in the region to successfully control inflation through higher interest rates and increased government spending on social programs.
International investors have relied on its currency as a key hedge against market volatility that often plagues emerging markets. Particularly, the peso has proven resilient in the face of political and geopolitical upheaval in Latin America.
The peso has several advantages over other emerging market currencies, making it a wise idea to bring some with you when visiting Mexico. You can use your currency for purchases like cars or food while there, or exchange it at the bank for other countries' coins.
Chile's stock market closed up 2.20 percent, with most of Chile's major indexes closing higher. Materials, industrial and energy companies led the gains with Sociedad Quimica y Minera de Chile (SQM) up 5.95%; Compania Sudamericana de Vapores (VAPORES) increasing 5.3%; Empresas CMPC (CMPC) adding 4.53%.
Chile's stock market has outperformed other emerging markets this year due to a surge in commodity prices that has benefited Chilean companies. For instance, lithium prices are up 123% this year alone.
However, Chile may not be a secure investment for all investors. Its currency, the peso, has been declining recently, and there remains an imminent risk of recession in 2023.
But the country boasts a long-standing record of strong economic growth, low unemployment rates, and an appealing valuation. Its banking sector is one of the strongest in Latin America.
Investment opportunities abound in Chile, making it an attractive location to build a diversified portfolio. Banco Santander Chile provides investors with an opportunity to benefit from the country's expanding economy.
Banco Santander Chile's coverage ratio is near an all-time high, and nonperforming loans (NPLs) are not a major concern at present. However, as the economy slows, Banco Santander Chile may see loan growth decline and NPLs increase.
Meanwhile, inflation in Venezuela has moderated due to monetary tightening measures taken by central bank official Miguel Angel Romero. Nonetheless, inflation remains a key medium-term risk.
Another area to monitor is private consumption, as it could decrease due to higher household debt and record-high inflation experienced this past year.
At present, China's household debt as a percentage of GDP has dropped slightly below the peak reached in June 2020. Meanwhile, its government deficit stands at 7.7 percent of gross domestic product and public debt at 37 percent - the highest level seen in three decades.
The iShares MSCI Chile ETF (ECH) is a popular way for investors to gain exposure to Chile's equity market. Unfortunately, it's heavily weighted towards materials stocks which have seen an uptick in commodity prices.
Argentina has become one of the leading stock markets in Latin America as investors take advantage of China's recovery and anticipate that currencies will weaken. On Thursday, Argentina's MERVAL index rose more than 7%, led by shares of Byma (BYMA), Pampa Energia (PAMP), Banco Bbva Argentina (BBAR), Transportadora de Gas del Sur (TGSU2) and Cresud (CRES).
The country's stock market has been on the rise since May 28 when MSCI upgraded it to emerging markets status, potentially opening the door for more investment and capital inflows. Unfortunately, this index upgrade comes at a difficult time with an ongoing recession, uncontrolled inflation, and elections scheduled for October.
Analysts anticipate a positive effect from the index upgrade, though its success depends on how the government maintains policy continuity after October. Political uncertainty and inconsistent initiatives by previous governments have long been obstacles to economic revival.
To gain insight into Argentina's economy, we spent two weeks there speaking to economists, farmers, politicians, restaurateurs, realtors, barbers, taxi drivers, money changers and street performers. While economic issues were always at the forefront of discussions, it became increasingly evident that this topic is deeply personal for many in Argentina.
Many Argentineans are facing difficulties with their local currency, the peso. It has lost value against the dollar and faces inflation of over 50% annually. As a result, people who would typically have extra cash in their bank accounts to purchase foreign currency or pay for food and goods are unable to do so.
For the poor, it's a vicious cycle. The peso's value against the dollar hurts their savings and wages, making it even harder for them to survive in an economic crisis that has left the economy on the brink of collapse.
The government is trying to alleviate the monetary crisis and curb inflation by raising wages and cutting some taxes. However, a government default would undermine all that work. The Argentine currency has already lost 26 percent in two months, potentially leading to further declines in the country's economy.