Dow Jones Sustainability - Research Proposal Example

? Topic: Stock Market Analysis Stock Market Analysis FTSE is an independent limited liability company that is jointly owned by the financial times and the London stock exchange. Its main mission is the creation and management of equities, bonds and alternative asset class indices. The FTSE are used by the interested investors, find managers, investment banks stock brokers for the purposes of analyzing investment purposes, performance measurement, asset allocation, portfolio hedging and creation of index tracking funds. There is a constant review and approval by the financial experts. (Katsanos, 2010) On the other hand, Dow Jones indexes is leading full-service index provider that develops, maintains and licenses indexes for use a benchmarks as the basis of investment products. In addition to this service, it offers equity indexes, fixed income and alternative indexes including measures of hedging funds, risks and real estates from risks that may hinder its growth and expansion. Its main mission is providing robust, transparent and useful tools that afford worldwide greater insights into the global markets. Its corporate strategies include innovation, quality service and commitment operational excellence (Gould, 1981) Strengths and weaknesses of FTSE The FTSE management has a wider range of knowledge and experience in dealing with the current volatility and difficult times and turmoil, for instance during the recent economic crisis that hit the world did not rudely shake the UK stock exchange drastically as the management, and through its expertise had hedged the risks associated with the economic slowdowns. Furthermore, the FTSE has a robust invest investment process characterized by wider market coverage as evident in its global operations around the world. It operates in more that one country, with market capitalization of trillions of shares and stocks. Strength of the FTSE group lies in this culture and structure that is firmly instituted with investment purposes. Clients who seek their services can access their services anywhere around the world in time. It has remained focused on diversification of its portfolios to maximize the risks such as economic slumps, volatile exchange rates and the political changes that might adversely affect the performance of the stocks. FTSE strong pillar lies in its blue-sky technology that is faster, reliable and efficient in administering its operations across the world. As pointed out in the report, it continually focus on improving the technology to encompass wider markets and reach a wider customer so as to address the diverging needs of the current and potential customers. On the other hand, its weaknesses as pointed out the audit committee include the financial and reporting and financial control material weaknesses. This ranges from the inadequate financial closing procedures aimed at creating unnecessary confidence in the potential investors. As noted, their financial statements do not reflect the true financial status. This is against the international Accounting standards which require a full, fair and honest disclosure of the material facts that may needed by both current and potential investors. (Ryan, 2004).Segregation of duties is also pointed out as one their weaknesses, whereby duties are segregated on unfair basis. Another major weaknesses that been a challenge in FTSE group is the incorrect conversion of the GAAP conversion. It is highly evidenced in conversion of complicated derivates and unifying the rule and procedures of conversion so that a fair and accurate benchmarking process is carried to reflect a true picture of the stock performance amongst its group of companies and across the world in stock market. Strengths and weakness of the Dow Jones Indexes As the Craig et al (2004) notes the strengths as outlined in their journal indicates the company has its stronghold in area of corporate governance established and managed by a cartel of experienced executives which have immense expertise in the process of management of equities, bonds and other securities. It is depicted in their measurement metrics that Dow Jones has sound policies in their environmental awareness through campaigns majorly aimed at reducing pollution, championing and promoting a sustainable environment. It is a shown in their weighted average scale (4.8 %). Other area where the company demonstrates capability developed from their core competence includes the following: strong and long-term investor relations, sound policies and plans on risk and crisis management, strategic planning, evaluation and control, stakeholder engagement , appraisal system installed in place and run for the benefit for the shareholders of the company. However, other areas where the company displays strengths include areas of compliance on the rules and regulation on bribery and corruption, as evidenced in their weighted rate of 4.2%. It has an efficient and broad data collection approach that encompasses range of financial and sustainability issues, for instance on ways of improving the environments. It is also noted that it has a well developed and transparent data system, that enable the investors and other interested stakes to repurpose that data for an array of uses, for instance purchasing or selling shares or investing in the companies listed in their stock exchange. The Craig et al (2004) points that Dow Jones outperforms other major world market such as those found in Japan, Italy and UK This is attributed to its core competences like a brand of resources such as their brand name and their status in the world market. However, its major weaknesses as pointed output in the report includes a low rate in social reporting like the FTS Company, which violates the GAAP and IAS thus sending a wrong signal of how their companies are performing in the world stock market. Environmental reporting is a another area that the Dow Jones underperforms during its course of operation, to evade tax on claims that it has legally complied with all the environmental audits and has carried corporate social responsibilities as directed in the management authority acts. It is supported in the philanthropy acts which have attracted a low rating (1.8%). It is also noted in the report that since DJSI examines a pre-determined group of high achieving and performing companies, there is a possibility of precluding of an examination of sustainability efforts in a broader contexts thus coming up with inaccurate and scanty data that only give a rough picture of how these companies are performing in the stock market. It has ill effects in perversion of both current and potential invertors which leads to transaction and other pecuniary costs. The companies rely basically on the self-reported information in rating its companies, allowing room for error, deceit, or subjectivity. This data is occasionally report with selfish intentions, personal interests and gains, it depends on the needs and the expected gains on the part of those reporting the data and the company’s public image projections. It is tantamount to false advertising which is only meant to project a false image on how ‘good and better’ company x is as compared to company Y. Future projection of both British and us share prices. According to the current report notes (markets today, 2011), the stock prices have slumped down as compared to the previous sessions. This was attributed to the outcome of the political policies to be undertaken by the government agents in Europe and the UK. Henk Plate, a market strategist with Barclays Wealth says that markets are becoming increasing nervous due to uncertainties of risks which are on the increase. It is also noted that due to heavy debts by more than 80 banks across 15 countries. Its projection is as shown below, which indicates a drop in share indexes. Markets Summary Change % Chg S&P/ASX 200 4102.1 43.9 + 1.08% Dow Jones 11523.01 0.00 + 0.00% FTSE 100 5332.63 19.87 + 0.37% SPI 200 DEC1 4146.000 12.000 + 0.30% AUD/USD 1.0031 0.0136 + 1.37% Source: Australian financial Review, 2011, Tuesday, Nov 29th 2011. The above data indicates how stock companies are trading in the stock exchange. A critical examination of the data above indicates that FTSE has lower market capitalization than Dow Jones. However, FTSE has slightly increased in performance as depicted by positive increases in its share indices unlike the Dow Jones. There is possibility that the overall prices of its group of companies are gaining positive momentum, as compared to the Dow Jones which is declining. Market comparison between DJ and FTSE Index high low close Chge % YTD % % high Low % 3y% FTSE 100 (U.K.) 5327.8 5164.7 5312.76 148.11 2.87 2.87 -10.0 6091.3 4944.4 -4.3 7.4 DJ Global 180.67 174.82 180.28 5.47 3.13 -18.6 238.76 171.60 -12.5 9.2 Asia Pacific Source: market data center, wall street journal, Monday 28th Nov.2011. The comparison between the above the DJ and the FTSE shows that share prices of FTSE is more stable and more predictable as compared to the DJ indices which is volatile in its price changes. For instance, a closer examination of the above financial data over a period over three ears indicates that DJ indices are slightly above the FTSE by 1.8%.However, looking at the percentage changes over a period of three years indicates that FTSE is exhibiting a lower price fluctuation as compared to the DJ indices.(citation needed) Advantages and limitations of predictions As note in Forssell (2008), statistical predictions are widely a diagnostic tool used in measurement of variables and making predictions about events and occurrences. The strengths of statistical predictions include the following (citation needed).another author (Weiner et al, 2003) describes a little of the strengths of the statistical predictions such as the financial data above. It is pointed out that statistical prediction is based on data analyzed by experts using the sophisticated softwares in their relevant fields. This implies that the data are computed more accurately and has little room for errors. Uniformity and consistency characterizes the experts in collecting, tabulating, analyzing of data which improve the error margin and promotes reliability and validity aspects. The statistical predictions are aimed at simplifying the complicated and complex data in a simple way so that non-financial professionals can also take part in trading on the stock exchange. The author adds on that these methods are mechanical predictions thus rate-retest reliability is perfect. However, on the other hand, the statistical prediction notes above for DJ and FTSE are made on assumptions that the stock market conditions shall remain the same. It does not consider the business environment, for instance, the political environment, the legal aspects and the internal working of a given company. It is maliciously based on assumptions. In addition, statistical predictions fall short of giving scientific understanding and theoretical frameworks that underlie certain performance in the market. It heavily ignores factors which influence and can aid in predicting future stock prices of stocks and shares in different companies. Statistical predictions ignores the market forces that influence the buying and selling of tock. It does not compute and predict demand or supply of stock, but only looks the actual demand as determined by these forces. Market forces of demand and supply are imperative in any business performance, an area that is of crude concern for stock valuation companies, investors and brokers. It tends to ignore the industry performances which affect the total market capitalization. This influences the earnings of a company or an individual engaged in stock market business. The approach also ignores the innovation and product development strategies implemented in a firm’s strategic plans. For example, an introduction of a new product has an impact of the existing products. Rivalry and stiff competition between substitutes and complimentary products has immense effects on the profit share a firm earns. In stock market, the listing of a new company reduces the market share for the existing companies. For instance, Facebook intend to have an Initial public Offer. This is going to affect the market share and subsequent sales volume of the already existing social sites twitter, and the rest. Statistical predictions such as the above ignore the investment decisions undertaken by the investment gurus, for instance, warren buffet, Bill gates, which are closely monitored by investors. This information will be ignored by the statistical predictions and treat Bill gates like any other ‘junior investors’, which is inaccurate and fallacious. Other factors which statistical inferences ignore include the state of technology in those companies, patent approval, wars, natural disaster, product recalls and legal suits. All this factors either tarnish or decorate the brand name of the companies. For instance, the Katrina earthquake negatively affected the investors’ decision from taking investment decisions in firms found in those places. Impact of major events on stock market Major events in the stock market affect both an individual and organizational behavior towards the financial markets. For instance, the 1929 recession affects the stock market. The market continued to fall during this period as investors and other money lenders reduced their lending to investors who wanted to invert n stocks. It affects the income of the investors which affect the demand for the stocks. Due to loss of drop in interest rates in the bonds and other securities, the gain from the stocks decreases leading to a decrease in demand for stocks. The decrease in borrowing from banks and other lending organizations subsequently lowered the market capitalizations as evidenced in the following turnovers over a period of a month. (Mitchell, 2004). Date change change close October 28, 1929 -38.33 -12.87 260.64 October 29, 1929 -30.57 -11.73 230.07 Another major impact on the stock k market performance is the war. Investors fear that war will destabilize the peace and confidence. The interest rates are negatively affected which in turn lower the purchase of socks in the market. Madura (2009) ,notes that war has a significant impact in the economic conditions of the investors. For instance, two-day invasion of Afghanistan affected cause a downward trend on stock analysis. It reduces the market capitalization and the aggregate turnover. In Afghanistan, the war affected the stock market in both countries, as both investors in both countries feared for the security and safety. A similar example is the September 11 terrorist attacks made investors in US stock exchange to lose confidence in the stocks. The global recession 20009 had negative impacts of global scale in every country. For instance, the Us economy recovered with a growth of 2.8%, compensating the Gross domestic Product ( GDP) in -2.9%.It is also noted that though there a slight recovery, employment remained at a historically high level. AS noted in the African Economic Outlook (2011), the response by the federal government was to purchase stocks and securities so as to revoke confidence investors who had lost confidence in the securities. Additionally, the replenishment of stocks in the US market is declining due to rising debt levels, increase in oil crisis and a continued depression of real estates leading loses. Another example that has caused a decrease in the confidence in the stock market analysis the political upheaval in most parts of the Africa typical example is the political revolt in Libya nd Egypt which has increased food prices, higher oil and social unrest which destabilizes the normal business operations. Current Graphs patterns The current trends in the graphs patterns depicted a downward trend in the year 2009 due to a global recession that caused dismal performance n the world economy. It is pointed out that since 2010; there has been a recovery in an upward trend due to germs of recovery in the early and subsequent year. As pointed out in the data, stock market performance has recovered except for the slight financial crisis that still hit some parts of the world. A series of graphs depicting how Dow Jones Indexes and FTSE is doing is as shown below. Source: charts by yahoo< http://www.allstocks.com/markets/US_Markets/us_markets.html> accessed on 29th Nov.2011. The above graphs have been drawn as per the latest data. All the above graphs have a possibility of future growth as shown with a projected increase in at the end as shown. In conclusion, the stock market is affected by so many factors such wars and political unrest, interest rates, exchange rates and the industry performance among other internal factors like technology, the management’s expertise and experience. FTSE and Dow Jones Indexes are limited liability companies in UK and US charged with responsibility of asset, real estate and other portfolio management. They play significant roles in the stock market and security exchanges. References I. Mitchell, C et al (2004) Dow Jones sustainability: measuring sustainability. Oct 15th 2004, Audit committee UK. II. Forssell, D (2008) Management and Leadership: Insight for Effective Practice Living Control Systems Public. I. Factors that affect and predict stock prices Read More