In the past week, you have possibly followed the decline of the major stock markets throughout the world including the US and Canadian stock exchanges . It’s the latest sign of a growing relationship between these exchanges. For several years, this relationship was one sided. In fact, the New York (or US in general) markets was the one to impact all others. No matter if it was an important increase or markets tumbling, they had important consequences throughout the world as other exchanges followed closely these movements. But the relation was rarely the other way around.
Slowly, this reality has been changing. It’s mostly the globalization that has had an important impact on these relations. More and more, the economic events are no longer isolated to a specific country or region but rather they become global events. When one country is in difficulty for any natural (think Tsunamis or earthquakes for example) or non-natural (currency collapse, debt problems, etc), all of its commercial partners suffer. If you take a corporate look at the situation, think of a company like Boeing. This company buys materials from tens of countries, has plane parts built in others, has customers, investors and more throughout the world. Any important event in the world will have important consequences on such a company.
Last week, after going up 130% in the past months, the Shanghai exchange suffered huge losses on Tuesday as it had a setback of 8,8% in one single day when the Chinese government announcement it would be looking into irregular activities on the exchange.
A few hours later, the Toronto exchange opened and effects were immediate as the TSX suffered a 3,9% setback. One of the reasons would be that any negative impact on Chinese companies that are buying Canadian natural resources would be a potential problem for these Canadian companies.
Why is this subject so important? Because more and more, it is one that investors, even individuals must be conscious of, they must be aware of international events, try to understand relations between countries, and events. This will eventually help you have a more diversified portfolio (which we will discuss soon) and it will also open very interesting and promising investment opportunities
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