The global stock market plays a critical role in industry growth and is the venue in which businesses can hire, invest and expand. It supports economic growth across every corner of the globe by boosting consumer confidence, driving higher economic output and generating more employment.
The stock market affects all types of traders including those using funded trading and its performance is a significant indicator of a country’s growth.
It’s a complex and volatile financial market that has far-reaching consequences when it takes a downturn.
Understanding Market Capitalisation
Market capitalisation, or market cap, is the total market value of a company’s outstanding shares of stock. This allows investors to determine a company’s size and how much it is worth on the open market. It also reflects how much company investors are willing to pay for stock, thus showing its overall worth on the open market.
Market cap is calculated using the price per share of a stock by the total number of outstanding shares. Typically, this formula will classify different stock using different market cap categories, ranging from large (companies with market cap exceeding £7.9 billion) to micro-cap (between £39.5 and £237 million).
Companies with larger market capitalisation are considered less risky investments compared to micro-cap, as these smaller companies typically have less experience in the business and deal with penny stocks.
Global Market Trends and Fluctuations
Since the market price of shares of a publicly listed company changes by the second, the global market is subject to trends and fluctuations, sometimes for the better and sometimes not. Major factors that can shape market trends include international transactions, supply and demand, governments and trust in the financial sector.
Any of these factors could contribute to a stock market crash, which occurs when there is a major dip in stock market indexes. These have a rippling effect across economies all over the world.
One of the worst stock market crashes with Black Monday crash of 1987, which was heavily influenced by computerised trading, trade deficits and geopolitical tensions in the Middle East. The 2020 Coronavirus crash was the most recent period of stock market instability.
Regional and Sectoral Contributions
Over time, the contributions of global stock market sectors have evolved dramatically. Key sectors such as information technology have almost doubled whilst past contributors such as the energy sector have decreased significantly. This reflects the ever-changing nature of global priorities and the knock-on effect of the more attractive returns of emerging markets.
These sectors play a pivotal role in shaping the value of the global market. As the overall confidence in the sector increases, more investors will enter the market to increase spending which leads to greater economic development.
Emerging Markets and Future Projections
Emerging markets are key drivers of global growth and provide brand-new investment opportunities with higher expected returns. These are also known as emerging countries, and they occur as nations invest in their own markets to engage with global markets as their economies develop.
Some of the biggest emerging markets are Brazil, Russia, India and China. Extremely lucrative gains can await investors, however, these investments are typically high-risk as emerging countries are subject to currency swings and a lack of liquidity.
It is expected that emerging-market stocks will make up a bigger share of the global market than giants such as the US within the next decade.
