Judging the health of a market

I was just going through the curriculum today when I happened to notice about “Markets” and “Industry Information”.

Following next hour, I spent learning as much as I can on how to measure the strength of the market (this is in reference to nation).

I found out that there are crucial parameters on which we could possibly measure the well being of a market and evaluate it. They are

• The Growth of Stock Market index over a period of time ( say 6 years) :

Example: HSE index has barely grown double the amount from 2000 to 2007, on the other hand Shanghai index has nearly tripled in last year (source CNN).
By that logic most of the European markets are at their worst stages, so would not be the best places to do business in.

In the same breath, if we see the bench mark indexes of

Phillipines ( PCOMP index), Singapore ( STI index), China ( SHCOMP and SZCOMP index)and Brazil (ibov index) are doing much better and economy looks to take off in these countries.

• Growth of Foreign direct Investment:

This is a totally new word for me. Quoting Wikipedia FDI “is a cross-border investment made by an investor with a view to establishing a lasting financial interest in an enterprise and exerting a degree of influence on that enterprise's operations and where the foreign investor holds an interest of at least 10% in equity capital”.

Simply means that MNC’s should be interested to invest in that company because the returns are higher. As an instance though Pakistan may still be the darling state of Mr.George Bush, it is not doing so good in terms of FDI since the region is marked by bombings, clashes and political turmoil now and then.

http://globalis.gvu.unu.edu/indicator.cfm?IndicatorID=155&country=MV#rowMV

Luxemburg tops the chart with FDI 349.96, Chad with 32.08 comes at much better position than India at 0.71 but we need to check the growth of FDI over years. Clearly India is the second ranker after China in growth of FDI. In 2006 the country witnessed 156 % growth in FDI over last year. Unbelievable!! Follow this article,
http://www.sunmediaonline.com/indiachronicleapril/investmentupdate.html


At same time a closer look would also reveal that China is considered a better market than India mostly because it has proved an excellent growth of FDI in recent years. Find this: http://www.rediff.com/money/2002/jul/29fdi.htm

• Capital Inflow:

This means - a net flow of capital, real and/or financial, into a country, in the form of increased purchases of domestic assets by foreigners and/or reduced holdings of foreign assets by domestic residents. Recorded as positive, or a credit, in the balance on capital account. Clearly more the capital inflow better is the economic health of the country.

• Real Estate price and number of foreign investors opening shops in the country:

This has mainly to do with lot many MNC’s opening up their branches and crowding the place. More Employment which basically explains the point below. Interestingly the purchasing capacity pf people also increases, leading to vicious cycle some thing which can be seen in cities like Bangalore and Hyderabad.

• Economic Growth Rate:

Increasing Economic growth rate is yet another indicator of healthy market.

• Unemployment:

If the Unemployment growth is dripping the country is definitely taking off in business world. Consider the job scenario in India a score years back and now. We have come a long way from seeing youth taking to suicides for lack of vacancy to (touch wood) a stage where we have liberty to choose which job to be in.

These are just a few parameters on which I guess we could use to evaluate market pulse. For more gyaan, I have to wait for classes at SPJCMR.

Note: We have not talked about Inflation. Some countries are considered business hot spot though no check has been made on Inflation. Example: India.