External Factors in a Country - Assignment Example

It is a widely known fact that external factors in a country have a profound influence on the behavior of the stock markets. Political factors, economic factors and the policies of governments all over the world have made the stock markets very fluid and volatile and many-a-times have even caused losses worth billions of dollars to many investors and traders. Traders in the stock market would always be anxious to know what's in store for them in the coming future. In this particular dissertation, I have clearly analyzed statistically the impact of automation on the Singapore stock exchange and Hang Seng. Now, this section deals with the effect other factors could have played on the performance other than the automation. When it comes to the analysis of other factors, it becomes imperative for me to delve into the political and economic factors of Hong Kong in 1993 and Singapore in 1989. It was clearly evident that the atmosphere of political turbulence affected the stock markets badly. Adding on the fuel, the Chinese and the British relations deteriorated further putting the markets in jeopardy. At that point of time, the market was also jittery about the rising US interest rates and moreover, the standoff that prevailed over the democratic reforms between the Hong Kong and the China sent made the traders feel a little insecure. Hang Seng received a lot of foreign money in the period of 1992-1993 from different investors all over the world, which could sustain the market, at least to some extent. However, many traders argued that the investors had made huge investments eyeing the economic boom in China and not Hong Kong itself. They felt that the investors were looking to invest in China via the shares of the blue-chip companies in Hong Kong. To a large extent, their speculation seems right at the moment, because, at that time when there was absolute political instability in the Hong Kong market, no investor would've come forward to invest in Hong Kong. Hong Kong's governor had proposed to go ahead with the electoral reforms put forward by the British government had been straight away by China and had in fact, enraged them to a great extent, thus signaling the break-up. Under such circumstances, it is too naive for one to expect the stock market to be functioning well. Moreover, it is not wrong to say that the political factors and the economic factors are interdependent for any nation. The tussle between the British and the Chinese over Hong Kong led to overshadowing of the HK economy, which in turn led to the steady downfall of the market. As pointed out in the analysis earlier, the stock markets were automated in the year 1993. This automation was definitely found to have had an impact on the growth of the stock markets, but didn't play it to the expected level. As pointed out above, it was the other factors, which essentially played a spoilsport and hampered the growth of the economy. The inconsistency of the Hang Seng markets can be gauged by looking at the charts given above and the major problem was the inconsistent political situation in the country. Although the political factors were playing a negative role in the development, speculation that China would take over Hong Kong brought in many investors who were actually expecting Hong Kong's economy to step into China's shoes and flourish economically. Hence, it brought in good investments but the bad political situation in the country overshadowed all the investments and hence, created a speculative atmosphere, which was difficult to come out of. On the other hand, the Singapore stock markets were flourishing really well and the political factors in fact, aided their growth and brought many new investments into the country. As such, the country didn't need to face any such situation, which would damage the country's economy and stock markets. As pointed out in the statistical analysis before, Singapore never turned back right from its inception and it stands today as one of the strongest markets in the Asian continent. Automation of the stock markets clearly caused a lot of impact on the growth of Singapore and boosted the growth by many folds. Till today, the stock markets have been going very strong. Comparing Hang Seng and Singapore Stock Exchange, automation clearly has impacted both the national stock exchanges to a large extent, but in the case of Hang Seng, the impact it would have created was overshadowed by other political factors. Read More