Changes in international stock markets and how they affect business and economy

Changes in international stock markets and how they affect business and economy
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A stock market is a market platform in which financial securities are displayed and traded either through exchanges or over the counter markets by the forces of demand and supply (Ṣabrī, 2007). It’s one of the key compositions of an open market economy as it provides companies with access to capital with a condition that investors get ownership in the company. The stock markets both in develop and developing countries enable investors across the globe to invest in firms. Stock investing is considered by a majority of people because stocks have outpaced other type of financial instruments regarding returns over a specific duration (Gaspar et al., 23). To support this statement, take for example Chinese stock market which has provided 70% returns on stock investments. There are financial times in which stock prices fall hence resulting in large fiscal losses to investors and also to the respective firms.
Movements in the international stock markets can have an extensive economic impact on the global economy. A collapse in the stock price will reduce U.S economic wealth since the stock market reveals how well a company performs. It also makes it easier for to get accessed to a performing company (Ṣabrī, 2007). A fall in stock price will discourage investors from injecting capital into the U.S companies hence companies won’t be having money to pay pensions plans and also enough money to pay for their employee.

This can lead to a portion of their employees losing their jobs. Eventually, America will go under great recession. In addition to this, a negative change in the stock market will weaken the American dollar leading to drop in assets hence a non-performing economy. To countries like China, a negative change in the stock market will lead to a devaluing of its currency (Gaspar et al., 23). Take for instance; lately, the Chinese stock market has been performing poorly. This has led to the investors both foreign and domestic borrowing a lot of money to upgrade the condition and raise the stock prices. This has also affected the price of valuable commodities such as crude oil and copper.
To developing countries which have become so integrated into the foreign market, these changes will have an extensive effect on their economy (Hol, 2003). With the all in stock market prices, there will be a reduced foreign investment and reduced demand for imports of commodities. This will make prices of commodities in the developing countries to go up since there are less supply and more demand.
Negatives changes in the international market will impact the U.S economy in the following ways; -there will be the reduction in wealth since the stock market is all about the investment of capital and flow of money within the economy (Gaspar et al., 23). When there is an insufficient flow of money, very little amount of wealth is being made. Investors will start looking for an alternative form of investments such as bond market and international banking since they offer better returns regarding uncertainty. To other developed like the United Kingdom and China, when these negative changes in stock prices occur, investors lose interest in the market and withdraw whatever he/she wanted to inject in the economy as capital. When there is no money in a countries economy, a country experiences what we call recession resulting into borrowing from international banks making the country to be under a lot of debts (Gaspar et al., 23). Developing countries like Kenya and others will be experiencing high prices of commodities. This is because, when investors withdraw their capital, the economy has nothing to run it hence creating an economy gap that makes commodities unreachable for the developing countries. There won’t be enough products for them to import for their use such as crude oil.
References
Ṣabrī, N. R. (2007). Stability of international stock markets. Hauppauge, N.Y: Nova Science
Publishers.
Hol, E. M. J. H. (2003). Empirical studies on volatility in international stock markets.
Dordrecht: Kluwer Academic.
Gaspar, J.E., Arreola-Risa, A., Bierman, L., Hise, R.T., Kolari, J.W., Murphy Smith, L.
(2016). Introduction to global business. Cengage Learning 2016 ISBN 978-1-305-
50118-8