Factors shaping the market trends

The trends in the equity markets are influenced by several factors that shape the decision of an investor of whether or not to invest their money in the alternate forms like equities, bonds or securities. These factors are helpful in providing insights into how future trends may occur. Some of the factors are explained below:

• Government – Government plays a key role in shaping the market trends by means of altering the interest rates and the availability of dollars. The change is accompanied by the increase or decrease in investment flows into and out of the country which in turn causes a profound impact on the financial marketplace. 

• International Transactions – The funds that flow between the countries directly affect the currency and economy of the country. The money that flows into the economy due to the fact that the countries indulge in exporting more products and services can be further reinvested that can stimulate the equities and financial markets in the respective countries.

• Speculation and Expectation – Speculation and expectations form the basis of shaping the decision of the investor regarding the time when the money needs to be invested in financial markets. Every economic agent like consumers, businessmen, investors and politicians have different views when it comes to foreseeing the direction in which the economy will move in the future. They speculate various expectations about the future trends in the markets which depend on current acts. The technique which is employed to analyse the perceptions and feelings of individuals about the current state of the economy is called sentiment indicators. These indicators along with the other forms of analysis like fundamental and technical analysis give insights into the market by creating a bias of future prices and trend direction. 

• Supply & Demand – The dynamics in prices are affected by the market forces such as supply and demand for various products, currencies and other investments. In financial markets, the stocks fluctuate in the short and long run, thus causing trends. Buyers will buy the stocks and assets at higher prices if the supply is eroding at the current prices which creates large price increases. On the contrary, there will be downward movement in the prices due to the entry of a large number of sellers which would increase the stock available in the market. This process takes place on all time frames. 

All the above-mentioned factors closely affect one another as they are closely linked. Government mandates like news releases, change in tax policy, the Fed decided to maintain the interest rate affect international transactions which further causes fluctuations in international transactions and thus in the financial markets. 

Changing the dynamics of the Global Financial Market during the COVID-19 pandemic 

The above figure showcases the returns to some of the major stocks in the world financial countries. When the number of COVID-19 cases was increasing at a faster rate, markets reacted to the announcements made by several pharmaceutical companies like BioNTech, Moderna and AstraZeneca on the release of vaccines that proved to be efficient in reducing the causes of COVID-19. The next major step was to ensure the quick and equitable manufacturing, distribution and administration of the vaccines on the large scale. The emerging markets are in the process of pre-ordering the AstraZeneca/Oxford vaccines so are eagerly waiting for the approval and release of the vaccines in the market (Morgan, 2020). With the governments making continuous efforts to control the virus worldwide, the path to recovery still looks blurred. For example in Europe, there has been a significant decline in the number of new infections due to the frequent lockdown measures taken by the authorities. In the US, the situation is a bit different with the rise in new cases despite the measures taken by the government. However high-frequency data has shown that these restrictions cause a slowdown in the economy. Thus markets are believed to foresee the economic developments in terms of better times on horizon in both short as well as long run. 

Following the decisions made by the governments in Europe, the UK government reintroduced measures to curb the spread of the virus. In the process, the business and households were provided with monetary help through furlough scheme. According to the forecasts made by The Office for Budget Responsibility, the government borrowing will account for about 19.4% of GDP which is an alarming figure not seen since the end of the Second World War. 

The Bank of England (BoE) made announcements to increase its asset purchase facility by about British Pound Sterling (GBP) 150 million. With the equity market, the performance in December was dominated by this year’s losers, as the economy is slowly returning to normality. This in turn is followed by the continued recovery of the earnings expectations provided the support to the equities. For the investors and individuals who are thinking to diversify their portfolio beyond equities, an equitable allocation to macro funds and real assets will be helpful.  

Monthly switching impacting on Global Market Indices

With the optimism surrounding the global wave of COVID-19 vaccines, the MSCI-EAFE Index recorded a jump of 16.86% in December. The European Financial markets started performing much better, with higher gains in countries like France, Italy, Germany and the UK. This was achieved as the European markets focussed on the prevention of the obstacles in the path of the EU recovery package. The Asian financial system also performed better. China picked up 9.27% while India outperformed the other emerging markets with a jump of 11.45%. The markets in the Pacific region also had a good month. With Australia recording a jump of 9.96% while Japan recording one of the highest jumps of 15.04%. 

The equities outperformed the bonds and currencies in the financial markets. The world equities index stood at 9.3%. There were higher returns in countries like Europe, the UK and Latin America. The emerging markets also showed satisfactory returns with 5.8%. On the other hand, the bonds and currencies registered negative returns across the countries worldwide. Individuals and investors speculated the declining growth of economies and uncertainties in the global financial markets due to COVID in the near future. Hence they preferred equities over government bonds and currencies in the hope of better returns. 

Conclusion

While the path to COVID-19 recovery still looks blurred, there will be optimism surrounding the investors and businesses in the global financial markets. This will restore the trust of the investors who will be looking forward to the release of the vaccine so that they can accordingly shape their investment preferences. However, it becomes extremely important to analyse the growing need for financial instruments and institutions in the financial market. With the large number of capitals involved in the market, any fluctuations in these investments will have an impact on both the economics of different countries as well as on the participants of the financial global markets. Therefore the proper understanding of the management and transparency becomes essential. 

Bibliography

Ghulam, & Diamond, N. (2016). Analysis of Financial Markets. LAUREA, VII(3), 32. 7 November

Greenwood, R., Hanson, S. G., & Jin, L. J. (2019, June 7). Reflexivity in Credit Markets. Harvard Business School, VI(2), 23. https://hbswk.hbs.edu/item/reflexivity-in-credit-markets

Jones, D. (2020, December 10). Monthly Market Insights- December 2020. Conscious Capital Wealth Management. https://www.consciouscapitalwm.com/campaigns/monthly-market-insights

Morgan, J.P. (2020, December 1). Monthly Market Review. J.P. Morgan Asset Management. https://am.jpmorgan.com/ch/en/asset-management/institutional/insights/market-insights/market-updates/monthly-market-review/

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China is a one-party state with power lying mainly in the hands of the Chinese Communist Party. Moreover, it is one of the five permanent members of the UN’s Security Council and thus possesses tremendous power and reach.

History of China’s Economy

The trade reforms introduced in 1978 have changed the economic position of the country on a gigantic level. 

After the reforms were introduced, the country began to open and its economy has seen tremendous growth. GDP growth averaged over 10% per year, making it one of the world’s fastest-growing-economies.

Recently, however, due to several imbalances, comparatively low growth rate of institutional development and fast pacing economic development, there have been several reform gaps that have kept the GDP growth rate at 6% per year and it has been decreasing continuously. The country has made Innovation its top priority while working on the strategy for the 2020-25 growth model catering to the current scenario.

China’s Strategic Advantage

China is an upper-middle-income country and a major supplier of raw materials to the rest of the world. It observes major investment from MNCs globally. Most of the products that we use in our daily life are labeled as either made in China or assembled in China.

Apple iPhone, which is considered a revolutionary product, gets its product assembling done in China. Low labour costs were considered the main reason initially but there has been a shift in recent years. Since countries like India, Vietnam, etc. can provide even cheaper labour, hence the question arises, what makes China different?

The answer is the quality of labour and the type of skill provided. As said by Tim Cook “You find in China the intersection of craftsman kind of skill, and sophisticated robotics and the computer science world. That intersection, which is very rare to find anywhere, is very important to our business.”

Thus, comparatively low labour costs, highly skilled labour, the ability to produce big consignment daily due to the strong labour force and a large home market make China an ideal country for product assembly. 

Trade Relations with India

Economic relations between India and China date back to ancient times with the Silk Route being the major trade route then. China is a major exporter of raw materials like pharmaceutical ingredients, steel, electronic devices, fertilizers for India, thus making India as China’s biggest trading partner after the US. India too runs a huge trade deficit with China.

The major inability of Indian companies to produce products at low rates arises because of a lack of research and development facilities, poor infrastructure and incompetent labour policies.

In a survey of about 90 people, it was asked: “What is the main reason that encourages you to buy foreign goods?”

The following were the observations:

Due to this Chinese goods gain an edge and find a huge market in India. Moreover, the Indian population forms a large base for many Chinese apps. These do not mainly contribute to revenue but they help in boosting the reach of the product which is even more beneficial for the companies.

However, with the recent clashes and increasing deficits, the Indian government has banned several Chinese applications and has been constantly focusing on promoting the ‘Made in India’ campaign.

Impact of the Current Situation

With the advent of the current pandemic, almost all economies have come to a standstill. While some of the countries have been able to deal with the situation efficiently and have already observed the peaks, others like the US and India are the worst struck and their economies have faced a major shock. 

China has been accused of hiding information about the virus which eventually led to the pandemic. Markets crashed and the price of crude barrels fell to such an extent that they became negative for the first time in history. Many people have been laid off from their jobs, causing them to fall into debt traps.

However, the current border tensions with China have induced an even greater hatred among Indian citizens towards Chinese goods and services. Many Chinese contracts and tenders have been reworked and the suppliers have been changed. These have vastly affected China’s economy.

Nevertheless, the economic interdependence of the two nations is way too important to be ignored. An all-out boycotting of Chinese goods would force people to buy expensive goods in this period of recession. This would just worsen the situation and the governments would have to further moderate the policies to accommodate the situation.

Conclusion

 It can be rightly said that the expansionist and influential regime of the Chinese government is at an all-time high. China might be taking this course of action to drive the attention of the world away from COVID allegations by having disputes with other nations. However, with this course of action, it is losing a huge consumer base in India. Though low priced quality goods might still prevail in the markets as Indians don’t have good homemade alternatives.

India and China have been embroiled in border disputes since 1962 after the Indo-China talks failed. China has always been intruding in the territorial sovereignty of India, this has been very common but the international community never held China liable because of its veto in UN and structural hegemony in international markets but the advent of COVID-19 has led to an international bias against China. The factual matrix has created a situation in which China might be held liable for the very first time for violating the ceasefire agreement on LAC as it has lost support in the international arena and the CCP is facing extreme criticisms for its violations and misuse of authority.

The first step towards the long turn process of improving the efficiency of production in India should be taken immediately. Trade shouldn’t be stopped but the trade deficit needs to be brought to a balance to prevent other nations from exerting dominance in the future.

China needs to take into account the possible isolation by other countries in the long run which might bring down the already decreasing GDP growth and the scenario before 1978 might come into the picture again. China should acknowledge the need of the hour and help its subordinate countries with the current pandemic, help in building their economies to ensure healthy trade relations, the welfare of mankind and stability. History is evident, Wars cease to create any good, rather are a great way to destroy the global economy, loss of life and property and leave the world in a state of regret and despair. 

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