Integration of Global Stock Market

What is financial integration?

After the globalisation of Indian markets after 1990’s national stock markets have arisen as the chief channel for financial amalgamation of upcoming market economies and globalisation. Over the years rapid increase in the economy has also led to the increase in IT sector. The cross border of flexibility of private capital inflows because of investors want of better portfolio diversification and a drastic shift among the companies from debt to equity finance are few reasons that led to the growth of financial integration. It is also seen that financial integration can be linked with various benefits like development of markets, institutions, strategies to create the provisions for savings and economic progress.

Lesson from the past

But these linkages can also turn out to be disadvantageous as it can create various risks like contagion and disruptions of economic activities. The year of 2008 is best suitable example to support this statement when national stock markets declined abruptly due to the development of credit markets in the United States. It has been researched by many economists that it is mandatory to monitor the progress of interdependence among the financial markets due to the economy policy.

How does it works?

The system of financial integration works on the framework of legal agreements, institutions, formal and informal economic factors which propagate the flow of international financial capital for the purpose of initiating trade-finance and investment. In past there have been rigorous efforts to uplift the international monetary system which improved the exchange rate stability and fostered the growth in global finance.

Advantages and benefits

The allocation of capital, better governance, higher investment, growth and risk sharing are major benefits of financial integration. Financial integration helps in strengthening the domestic financial sector which accounts for more efficient capital, greater investment and growth opportunities. It is also observed that financial gains can also be created among domestic financial firms because they have to compete directly with global firms and it is the reason which has led to better corporate governance.

Many well-known economists around the world believed that a nation should focus on getting broader capital base which can fuel the economic growth. Thus it is the reason that financial integration facilitates the flows of capital from developed economies to developing economies.

How did it changed the nation’s economy?

The big thing about the amalgamation of financial stock markets is that it has given boost to macroeconomic policies, health policies, enhanced bank regulations and strengthened the legal property rights in almost every nation. It has enabled an organised order of propagating foreign direct investment, liberalization of domestic equity capital. The effect of strong financial integration has also lead to the high capital outflows and short term capital mobility. It has given a strong base for the country like India to develop reliable currency from the outlook of domestic and international investors so that they could witness the benefits of greater liquidity, greater savings and accelerated economic growth. It is said that a country which holds unrestrained access to foreign capital markets without establishing a valuable currency can become vulnerable to hypothetical capital flights and can suffer serious economic costs.

How to analyse a stock?

The analysis performed for evaluating a particular trading instrument including investment sector and an entire market sector is known as stock analysis. The analysis executed by stock analyst is usually done to determine the future activity of an instrument, sector or market. The method which is adopted by investors and traders to make buying and selling decisions is called stock analysis. Investors can make an attempt to gain benefits from the financial markets by evaluating the past and current data of shares.