The Banking Executive Magazine - January 2023 Issue

oil everywhere in the world. Global currency markets are a partic- ularly extreme example of this vari- ety of marketplace. Currency trading tends to involve the rapid flow of wealth, as investors seek out greater profits on a very short-term basis. This phenomenon has led to several efforts to limit the functioning of the global market in currencies, as the rapid, largely speculative buying and selling of currencies can have a sub- stantially disruptive effect on markets in actual physical goods. GLOBAL MARKETS INDICES Global indices are a benchmark to evaluate the strength or weakness in the overall market. Normally, a sam- ple of highly liquid and valuable stocks from the universe of listed stocks is selected and made into an index. The weighted movement of these sets of stocks or portfolios of stocks constitutes the movement of global indices. So, if global indices are moving up that means the mar- kets are strong and if global indices are moving lower that means global markets are weak. Global indices can be considered as a hypothetical portfolio of invest- ment holdings that represents a seg- ment of the financial market or the global indices market. The calcula- tion of the index value is derived from the prices of the underlying stocks or assets in the index. Globally, different indices are fol- lowed by investors. In the United States US, the three most popular stock indexes for tracking the per- formance of the US market are the Dow Jones Industrial Average (DJIA), the Standard and Poor's S&P 500, and the National Association of Se- curities Dealers Automated Quota- tions NASDAQ Composite Index. The NASDAQ is the over-the- counter market OTC market that trades in high technology sectors like Information Technology IT, e-com- merce, biotechnology, etc. Similarly, in bond markets, Bloomberg Bar- clays is a leading provider of market indexes with the Bloomberg Barclays U.S. Aggregate Bond Index being a popular benchmark. Key characteristics of global indices are: • Global indices provide a broad representative portfolio of invest- ment holdings of an asset class. • Methodologies for constructing global indices vary but most of the indexes are based on market cap weighting and free float weighting. • Global indices act as benchmarks to gauge the performance of mar- ket segments and also as a barom- eter of the economic robustness. • Indexes can be used as a proxy for a passive portfolio in the form of index funds or index for Exchange- traded funds ETFs. Global indices have their method for calculating the index value that is based on the method approved by their index committee. Weighted av- erage mathematics is primarily the basis for all index calculations. Many indices started as price-weighted in- dices but eventually shifted to be- coming market-cap-weighted to ensure that smaller stocks do not exert an inordinate impact on in- dices. Similarly, in the modern-day, most of the indices are also free-float weighted. That means while calcu- lating the market cap for weighting, the market cap of the promoter hold- ings is excluded to give a more pre- cise picture. The most popular global indices like the Dow Jones, The Financial Times Stock Exchange FTSE, Deutscher Ak- tien Index DAX, Cotation Assistée en Continu CAC, Nikkei, Nifty, Sensex, etc. give an overall view of the mar- ket and also economic robustness. Global Markets Outlook 2023 ISSUE 169 JANUARY 2023 the BANKING EXECUTIVE 33