This year has seen consistent volatility in the markets. On Monday, July 22, the BIST 100 opened with a marginal change of 0.14%, reaching 11,140.75 points. Compared to previous days, the index has slowed down after two solid days of market performance.
Over the past week, the BIST 100 has shown a growth of 0.69%. Nevertheless, it has yet to recover its value from a year ago. The index is currently just 0.14% below its peak for the year, which stands at 11,156.20 points, while it is 50.31% above its lowest value this year of 7,412 points.
A stock index is a key indicator that reveals how the value of a specific group of assets changes. It aggregates data from various companies or sectors within a part of the market. These indices are primarily used by stock exchanges in different countries, and each one can consist of companies with particular traits, such as similar market capitalization or belonging to the same industry. Some indices may use a select few stocks to determine their value, while others incorporate hundreds.
Stock indices serve multiple purposes. They indicate confidence in the stock market, corporate trust, the health of national and global economies, and the performance of investments in shares of a company. When investors lack confidence, stock prices generally tend to fall.
Additionally, indices help measure the performance of asset managers. They allow investors to compare returns and risks, assess financial asset opportunities, or create portfolios. The use of such indicators began in the late 19th century, when journalist Charles H. Dow noticed that stock prices for companies tended to rise or fall together. As a result, he created two indices: one for the 20 leading railroad companies and another for 12 stocks from different industries.
Today, there are various indices categorized by geographic location, sectors, company sizes, or even types of assets. For instance, the Nasdaq index in the U.S. comprises the largest 100 companies primarily related to technology, including giants like Apple, Microsoft, Amazon, Facebook, Alphabet, Tesla, Nvidia, PayPal, Comcast, and Adobe.
Every stock index has its own calculation method, but the main component is the market capitalization of the companies within it. This is determined by multiplying the current stock price by the total number of shares held by investors. Publicly traded companies must provide a balance sheet that includes their composition, which should be submitted every three to six months, depending on the requirements.
Reading a stock index also involves examining its changes over time. New indices start with a fixed value based on stock prices at their inception, although not all indices follow this approach, which can lead to misunderstandings.
For example, if one index increases by 500 points in a day while another rises by only 20, it may seem at first that the former performed better. However, if the first began the day at 30,000 points, while the second began at just 300, the percentage gains for the second index would actually be much more significant.
In the United States, major stock indices include the Dow Jones Industrial Average, commonly known as the Dow Jones, which consists of 30 companies. Additionally, the S&P 500 includes 500 of the largest businesses listed on the New York Stock Exchange, while the Nasdaq 100 contains 100 of the largest non-financial companies.
In Europe, significant indices include the Eurostoxx 50, which encompasses the 50 largest companies in the eurozone; the DAX 30, which features the most prominent companies on the Frankfurt Stock Exchange; the FTSE 100 in London; the CAC 40 in Paris; and the IBEX 35 in Spain.
Asia is home to the Nikkei 225, which includes the 225 largest firms on the Tokyo Stock Exchange, along with the SSE Composite Index, the most notable in China, featuring key companies from the Shanghai Stock Exchange. The Hang Seng Index in Hong Kong and the KOSPI in South Korea also serve similar roles in their respective markets.
In Latin America, the IPC includes the 35 most consolidated firms listed on the Mexican Stock Exchange, with at least a third owned by magnate Carlos Slim. Other important indices are the Bovespa, which comprises the 50 largest companies in São Paulo; the Merval in Argentina; the IPSA in Chile; the MSCI COLCAP in Colombia; and the IBC in Caracas, made up of six Venezuelan companies.
Moreover, there are global stock indices like the MSCI Latin America, covering the 137 most significant firms from Brazil, Chile, Colombia, Mexico, and Peru. The MSCI World includes 1,600 companies from 23 developed countries; the MSCI Emerging Markets is made up of over 800 companies from developing nations, and the S&P Global 100 features the 100 most powerful multinational corporations worldwide.
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