Global stock markets how they affect the economy

Here in the Philippines, there are lots of events that can – and do – have an effect on the economy. From the recent debates over the local labour market to natural disasters such as Typhoon Haiyan, there are all sorts of ways that our system can be shifted and nudged. But did you know that the behaviour of the global stock markets also affects our economy? Even events on stock markets as far away as New York and London can have knock-on effects here, and it’s something that all investors should watch out for. Here are just two major ways that this can happen.

Investment destinations

The stock markets are some of the most attractive investment vehicles out there. While no stock investment ever has a certain outcome, it’s true to say that many global stock markets have managed to rectify any problems over a period of years and earn back their value. For long-term investors, then, tying up cash in the London Stock Exchange or on the NASDAQ offers some semblance of security.

However, for the Filipino economy, this spells a problem. The Philippines requires investment – and if cash from abroad is locked into the global stock markets, then it’s not being invested here. Something that might be an appealing investment in America or Europe is to many Filipino businesses a competitor for international investment – and chronic underinvestment here can in part be explained by the presence of better, stock-focused alternatives elsewhere.

Crashes and declines

Stock markets around the world dip and rise all the time, often due to political or economic events in their home country. In Britain, for example, the stock market has declined in value several times recently as a result of the latest twists and turns in the negotiations between the country and the EU over Brexit. However, this sort of event can have a knock-on effect for other countries. In a globalised world, companies often have investors and backers dotted all over the world. If a Filipino investor has holdings in listed US companies, for example, then a significant decline on the NASDAQ in New York may reduce the value of their holdings, and in turn reduce how much tax they pay in the Philippines or how much profit they can spend here.

On a larger scale, stock market “contagion” can take hold if the problem is severe enough: in this scenario, moves to sell stocks in one country can spread to another, causing investors across the globe to pull out of their stock commitments. For Filipino investors, then, it makes sense to get informed by investing in a weekly stock calendar or other information source: this way, any ups and downs in global stock markets can be identified and the consequences mitigated.

Foreign stock markets, then, may seem a world away to many Filipinos. However, they’re vital nodes in the global economic system, and for that reason, there can be all sorts of domestic consequences to stock market issues. Whether it’s the impact that a stock market crash elsewhere can have on our economy or simply the fact that international exchanges are investment competitors to the Philippines, the global stock markets simply cannot be ignored.