Introduction
and Brief Overview of Stock Markets
Introduction
By the time passes, it is so
common among all around the world to have its economy developed by the most
effective and efficient ways. The same principles has occured in the financial
system too. One of the most interesting business models in finance is about the
business in ownership of corporations, in other words, the global investors
have proven the attractiveness of capital market to get an economic growth. In
fincance, we obviously call the best profit of the capital market has been in
the long run profits and in the short run abnormal return. It has been proven
too that corporations’ growth has been affected by the companies’ responsibility
to the shareholders. Therefore, basically we may perceive that continuous
relations between companies and the owners (investors) will always be
maintained even as the long run financial system.
However, many experiences
showed that stock market as the representative of the financial ownership
business have been always even unpredictable, volatile, and sometimes moved in
undesirable growth. Many years before, by the global financial reducing barriers,
global investors and companies really expected long run mutual profits in the
more massive diversified portfolio of investments. As the principle of
continuous learning, the 2007—2008 global crisis was one of the most important experiences
for global financial managers. The concept of “risk-return analysis” is
believed to be paid more attention rather than before. The huge expectation of
global diversification was proven to be reluctant with the global recession
issues for each country members’ economic issues in the diversification. In one
side, the global return might be high, but conversely the negative side-effect
may also be very severe even to the nation’s economy. Therefore, further study,
proofs, and academic solutions are rationally deemed to be very necessary for
global financial education.
At the moment, for our
broader and deeper study, I have prepared four national capital markets to
discuss: The South Korea, Russia, China, and Indonesia. After understanding
exactly the need of studying the global capital market, Ross (2003) suggested
us to both explicitly and implicity know and comprend how the international
flow of money has been conducted. By keeping the understanding of how the money
flows among the world, we have already had a really good base of drilling into
the depth of each financial flows among the countries. However, study revealed
that international financial flow has been mainly going around the developed
market and until this time the developing country has only been a
second-layered priority. More over, in the global capital market the less
developed countries are poorly expected by the investors. Therefore, in this
simple paper, we exclude the less developed countries.
Brief
Overview of Stock Markets
On top of our discussion, I
still believe in my personal opinion that international investors are still in
use of the developed country’s stock market as the dependent variable of how to
measure the global risk-return analysis. Hence, we still have to understand
briefly about the USA’s Dow Jones in correlation with the four countries’ stock
market movement, especially before and after the occurance of the 2007—2008’s
global crisis that were happening firstly in the USA. Here are brief overview
of our today’s stock markets (wikipedia.org):
1.
Moscow Interbank
Currency Exchange (Redirected from MICEX)
The Moscow Interbank Currency Exchange
(Russian: Московская
межбанковская валютная биржа) or MICEX was one of the
largest universal stock exchanges in the Russian
Federation and East Europe. MICEX opened in 1992 and was the
leading Russian stock exchange. About 239 Russian companies were listed, with a
market
capitalization of US$950 billion as of December
2010. MICEX consisted of about 550 participating organizations and
members, which trade for their clients. In 2006 the volume of transactions on
the MICEX reached 20.38 trillion rubles (US$754.9 billion), representing more
than 90% of the total turnover of the leading stock exchanges in the Russian
stock market. In 2011 MICEX merged with Russian Trading
System creating Moscow Exchange.
MICEX started with currency auctions in
November 1989 as an initiative by the Foreign trade and investment bank of
the USSR. Thus, for the first time the market ruble exchange rate to dollar
was established. In January 1992 it became the main platform for carrying out
currency transactions for banks and enterprises. Until July 1992 the rate in the Moscow
Interbank Stock Exchange was used by the Central Bank for the official
quotation of ruble to foreign currencies. In the mid 1990s preparation for
trading corporate securities and futures began. On 19 December 2011, MICEX merged with
Russian Trading System. The merger created a single entity that is expected to
become a leading stock exchange globally for trading across asset classes and
to advance Russia's plans to turn Moscow into an international financial
centre. Hence forth to be known as MICEX-RTS, the full merger of the
organisational structure is not yet completed. Problems in merging the infrastructure
resulted in computer error in trades, something that had not happened on the
merged exchanges for a decade: on the first day of trades, there was a short
period of computer glitches when the clearing system malfunctioned, which
resulted in registering multiple unsanctioned deals, with some traders
suffering losses.
The goals of the merger include the optimization of the Russian stock market, the
reduction of the number of organizations with overlapping functions, the creation of a single
platform for issuers, traders and investors, the reduction of transaction
costs, and easier trading. The united exchange is undergoing a rebranding, with the new brand
identity to be unveiled in the first half of 2012.
2.
JSX Composite (Redirected from IHSG)
The IDX Composite (formerly: JSX
Composite, Indonesian: Indeks Harga Saham Gabungan, IHSG) is an
index of all stocks that trade on the Indonesia Stock Exchange, IDX (formerly
known as Jakarta Stock Exchange, JSX).
3.
SSE Composite Index
The SSE Composite Index (Chinese: 上海证券交易所综合股价指, 简称上证综指) is an index of all stocks (A shares
and B shares) that are traded at the Chinese’s Shanghai Stock Exchange.SSE Indices are
all calculated using a Paasche weighted composite price index formula. This
means that the index is based on a base period on a specific base day for its
calculation. The base day for SSE Composite Index is December 19, 1990, and the
base period is the total market capitalization of all stocks of that day. The
Base Value is 100. The index was launched on July 15, 1991.
The B share stocks are generally denominated
in US dollars for calculation purposes. For calculation of other indices, B
share stock prices are converted to RMB at the applicable exchange rate (the
middle price of US dollar on the last trading day of each week) at China
Foreign Exchange Trading Center and then published by the exchange. The full
list of all constituent stocks can be found at SSE or at Yahoo! Finance.
4.
KOSPI
The Korea Composite Stock Price Index
or KOSPI (코스피지수) is the index of all common stocks traded on the Stock Market
Division—previously, Korea Stock
Exchange—of the Korea Exchange. It's the representative stock market
index of South Korea, like the Dow Jones
Industrial Average or S&P 500 in the U.S. KOSPI was introduced in 1983 with the
base value of 100 as of January 4, 1980. It's calculated based on market
capitalization. As of 2007, KOSPI's daily volume is
hundreds of millions of shares or (trillions of won). KOSPI (한국종합주가지수 Hanguk
jonghap juga jisu) was introduced in 1983, replacing Dow-style KCSPI (Korea
Composite Stock Price Index).
For years, KOSPI moved below 1,000, peaking
above 1,000 in April 1989, November 1994, and January 2000. On June 17, 1998, KOSPI recorded its
largest one-day percentage gain of 8.50% (23.81 points), recovering from the
bottom of the Asian financial
crisis. On September 12, 2001, KOSPI had its largest one-day percentage
drop of 12.02% (64.97 points) just after 9/11.
On February 28, 2005, KOSPI closed at
1,011.36. It then plunged to 902.88 until April. But unlike previous bull
traps, it kept moving upward breaking the long-standing 1,000 point resistance
level. In November 2005, the index's Korean name was officially changed
to Koseupi jisu (코스피지수). On July 24, 2007, KOSPI broke 2,000
level for the first time. On July 25 it closed at 2,004.22. On August 20, 2007, the index
recovered 93.20 (5.69%), its largest one-day point gain, after the U.S. Federal
Reserve lowered the discount rate. Then on October
16, 2008, the index dropped 126.50 (9.44%), after the Dow
Jones index dropped 7.87%.
5.
Dow Jones
Dow Jones & Company is an American publishing and financial information firm. The company was founded in 1882 by
three reporters: Charles Dow, Edward Jones, and Charles
Bergstresser. Like The New York
Times and the Washington Post, the company was in recent years
publicly traded but privately controlled. The company was led by the Bancroft family, which effectively controlled 64% of
all voting stock, before being acquired by News Corporation.
The company became a subsidiary of News
Corporation after an extended takeover bid during 2007. It was reported on
August 1, 2007 that the bid had been successful after an extended period of
uncertainty about shareholder agreement. The transaction was completed on
December 13, 2007. It was worth US$5 billion or $60 a share, giving NewsCorp
control of The Wall Street
Journal and ending the Bancroft family's 105
years of ownership.In 2010, the company sold 90% of Dow Jones Indexes to the CME Group, including the Dow Jones
Industrial Average.
Comparative Analysis of South Korea, Russia, China, and
Indonesia Stock Markets
Theoretical
Foundation
In evaluating
national stock market, I prepared a very brief but powerful analysis and
evaluation of the four-nation main stock markets. Therefore, we would like to
classify indicators that we are going to use today in several relevant points.
We are going to use the three classifications because, it is believed that from
having the three perceptions of evaluation, our view will be concise and
clearer about a certain stock market. If we only stree our analysis in
technical (calculations and charts) aspects, we might be trapped in many
mathematical calculations that are sometimes not able to value a certain
foundation of the stock market because by using fundamental analysis, we are
hoped to be able to understand clearly about the national economic foundation.
Therefore, we have to be balance among the three kinds of analysis.
Fundamental Analysis: The fundamental analysis answers a question
of “Can a very well-fashioned building survive from natural disasters?”
Therefore, depends on the building fundamental. It consists of:
a.
Economic aspects:
national income (GDP & GNP), interest rate, inflation rate.
b.
Industrial
aspects: economic structure, competition, privatization, foreign direct
investments, domestic direct investments, and so on.
c.
Company aspects:
individual competition (substitutes), market share, unique conclusion about
several companies and industries (challenging, saturating, and so on).
Technical Analysis: the experts in financial technical analysis
are usually called chartists. Therefore, technical analysis is about
operational and procedural analysis of a certain stock markets. The analysis
consists of: trading atmosphere (short term or long term), global risk-return
analysis, correlation analysis, trend analysis, and other statistical
forecasting and evaluations.
Behavioral Analysis: answers the importance of analyzing the
investors who always have different perceptions in different circumstances.
They are human who are unpredictable in every different nations, even more they
are sometimes proven to be irrational. Hence, the behavioral analysis is based
on thoughts of evaluating the humans’ rationality in investing.
Comparative
Analysis of South Korea, Russia, China, and Indonesia Stock Markets
Fundamental
Approach
From the Figure 1
(in Appendix), we have identified several approach in chart in order to see the
that the global crisis really did bring impacts to the nations. However, the
figure also proved that there is a huge correlation among GDP and GNI of the countries
to the volume of the traded stocks over the year (2002—2011). More over, in the
country like USA and South Korea, in the period it has been shown that even
their traded stock volume is more than the countries’ GDP. Recall that these
countries are categorized as developed income countries. It really showed us
that these developed countries fundamentally have had bigger influence in the
world’s finance. On the other side, China is the one that showed progressive
influence. From the previous similar condition to the Russia Federation and
Indonesia, China rose its overall GDP and GNI with the more amount in traded
stocks. Therefore, briefly we may take conclusion that for USA, South Korea,
and China, global risks are deemed to be more holded rather than the Russia and
the Indonesia.
In the
perspective of evaluating the global crisis effects to the countries, Indonesia
seemed to be the least in bearing the previous global effect. The figure’s
shape directly showed us that even though there might be several stacked
movements, Indonesia’s stock marker (even more the GDP and GNI) were still
stable compared to Russia, China, South Korean, even the USA where it happened
there. Therefore, in this pint of view, Indonesian stocks showed its own
interesting side.
Technical
Approach
In the technical
approach to see deeper about the countries’ stock performance, we would like to
make separation of analysis of before June 2007, when the global crisis strated
(Wikipedia) and after the 2007 to see the phenomena of how these countries
suffered and might recover or faced the global crisis to face the future
challenges.
In the return
information (Figure 3 & 4), it is very useful to verify that actually
Indonesia is still the most favorable one among the other stock markets (for
MICEX the information is really closed to outsiders / non-subscribers and the
ExAnte return data was only from 2010). For both before and after the global
crisis, Indonesia has still had the lowest Covariance.
In the charts
above (Figure 4 & 5), just generally if we judge that more than 50% of
correlation as relatively significant correlation, we might learn a lot of
things, especially in the perspective of Indonesia. Indonesia survived the
global crisis (even though volatility was still inevitable at that time)
actually because Indonesia was proven above to have insignificant correlation
with the developed stock market (KOSPI & DJA), but rather to be correlated
to the SSE of China. The challenge comes after the global crisis (Figure 6) when
Indonesia shifted the majority of investors to be more in the developed stock
market. Previously, it had significant correlation with the Chinese SSE but
after the global crisis, Indonesia was proven to be moved away from the
previous correlation with the SSSE. The question is: “Is the Indonesian stock market will be still steadily competitive if
the strategy is like that in the future?”
Conslusion
Even though we
still leave the behavioral analysis, general learning and analysis of the
4-country stock market can be gotten already. Among the financial phenomenas
(especially because of the global financial risk), investors got paid attention
more time by time to the concept of risk-return analysis in creating portfolio
of investment. However, maintaining the uniqueness of the stock market has been
a great challenge, especially for Indonesia. Indonesia was able to survive the
crisis because of insignificant correlation with the developed countries like
the USA and South Korea. Howeverm after seeing the atteactiveness of Indonesian
capital market (we believe), the developed coutries’ investors gained more
Indonesian stocks. Therefore, the risk transferred to Indonesia and it is going
to be a significant risk if something happen to the developed countries’ emerging
economies. It is a compulsory for both Indonesian government and businessmen to
maintain the capital market situation and lastly will contribute to the overall
economy for all people in Indonesia.
References
Beim, D.O. & Calomiris C.W. (2001). Emerging Financial Markets. NY:
McGraw-Hill Irwin International.
Mishkin,
Frederic S. 2001. The Economics of Money, Banking, and Financial Markets. Sixth
edition. USA: Addison Wesley Longman
Robin. (2011). International Corporate Finance. NY: McGraw-Hill Irwin
International.
Ross, Westerfield, & Jordan. (2006). Corporate Finance Fundamentals. NY:
McGraw-Hill Irwin International.
