I. Background
Capital market is a market in which individuals and institutions trade financial securities. Organizations/institutions in the public and private sectors also often sell securities on the capital markets in order to raise funds. Thus, this type of market is composed of both the primary and secondary markets. (http://www.investopedia.com/terms/c/capitalmarkets.asp).
In other words, it is somewhat a facilitator so that enterprises and companies can raise long term funds. To add the information, capital market includes the stock and the bond market. Above we also see the term primary and secondary markets, which in primary markets, new stock or bond issues are sold to investors through a mechanism known as underwriting. In the secondary markets, existing securities are sold and bought among investors or traders, usually on a securities exchange, over-the-counter, or elsewhere.
The capital markets of all the countries have undergone a number of reforms in the history. Economic theories are made and implemented to reform the functionalities of the capital market. The prime objective behind all the policies and reforms was obviously to strengthen the capital market of a particular country as much as possible.
The countries that will be used and analyzed are Indonesia, Philippines, and Brazil. The capital market index for Indonesia that will be used is the JSX Composite or the IHSG, for Philippines will be the PSEi and for Brazil will be the Bovespa. The data of the corresponding capital market that will be used will begin at January 1st of 2006 until the end of April 2011. In other words, the range is 6 years. The data used is also in monthly because in comparing 3 countries and to analyze the relation among capital market,
II. History and Capital Markets Used for Analysis
1. JSX Composite or the IHSG (Indeks Harga Saham Gabungan) is the stock indexe that is used by Bursa Efek Indonesia. It was introduced first back in April 1983 as an indicator of the stock price movement in Bursa Efek. This index includes the movement of all the regular stock and the preferred stock which are recorded in BEI. From the data gathered from www.finance.yahoo.com, ranging 6 years monthly price, the highest point of closing price is 3819,62 which is this April 2011.
2. The PSE (Philippine Stock Exchange) Composite Index, commonly known previously as the PHISIX and presently as the PSEi, is the main stock market index of the Philippine Stock Exchange. The PSEi is the most watched index on the PSE and is also home to most major Philippine companies listed on the PSE. The PSEi is also the PSE's only broad-base index. It is also one of the indicators on the general state of the Philippine economy. The PSEi was one of the indices kept intact during the reclassification of the PSE's indices on January 2, 2006. The formal Philippines capital market is one of the oldest in Asia. The Manila Stock Exchange was established in 1927.Gold and copper mining stocks dominated trading during the first five decades of operation, and trade in oil stocks caused a boom in the late1970s. A rival financial group established a second stock exchange in 1963. After years of conflict, the government induced the two exchanges to merge in 1994 to form the Philippines Stock Exchange (PSE).The highest point of the closing price is at this April 2011 with the price of 4319,51.
3. The Bovespa Index is an index of about 50 stocks that are traded on the São Paulo Stock, Mercantile & Futures Exchange (Bovespa: BOlsa de Valores do Estado de São PAulo). IBOVESPA is an accumulation index. Its index number represents the present value of a portfolio begun on 2 January 1968, with a starting value of 100 and taking into account share price increases plus the reinvestment of all dividends, subscription rights and bonus stocks received. It is one of the largest exchanges in the world in terms of market value, the second largest in the Americas, and the leading exchange in Latin America. In today’s global scenario, in which the ability to respond quickly to market changes has become increasingly important, BM&FBOVESPA is an attractive investment option with cost-efficient trading fees. BM&FBOVESPA trades stocks, public and private sector securities, futures contracts based on financial assets, indexes, interest rates, foreign exchange rates and commodities, in addition to spot US Dollar and gold. Trading is carried out exclusively in the electronic trading system, where investors can perform transactions involving stock purchases and sales, hedge, price arbitration between markets and/or assets, portfolio diversification and position leverage. As the leader in the Latin American equity and derivatives markets, the mission of BM&FBOVESPA is to contribute to regional macroeconomic growth and to position Brazil as an international financial hub for equities, commodities, and other financial instruments, combining operational excellence with a socially responsible approach. The highest point of Bovespa Index is at May 2008 with the value of 72593.
III. Factors Used for the Analysis
#Market efficiency
Market efficiency is the degree of the reflection of the stock which correspondent to the available information. Market efficiency has varying degrees: strong, semi-strong, and weak. Weak form: all the past prices for a stock explicitly reflect the information available. Semi-Strong form: the price is reflected not only by all of the past prices, but also all publicly available information. Strong form: the price of the stock is reflected with all the information that could be achieved by doing a deeper analysis of the company and the condition of the economy. Stock prices in a perfectly efficient market reflect all available information. These levels suggest that the responsiveness of stock prices to relevant information may vary (Investopedia.com). The level of information available is different among countries. That is why this will be one of the tools used for analysis.
#Volume of transaction
Volume here represents the number of shares or contracts traded in an entire market during a given period of time. In the context of stock trading on a stock exchange, the volume is usually known as the number of shares that is exchanged during the day. Average volume is reported as the average volume over a longer period of time, normally one to three months.
When the significant positive or negative news is made public about a company, the volume of the company's stock will usually deviate from its average volume, meaning that more people are trading this stock. Higher volume for a stock is an indicator of higher liquidity.
#Interest rate
The interest rate plays a factor in the decision of a foreign investor to invest in a certain country. An interest rate is the rate at which interest is paid by a borrower for the use of money that they borrow from a lender. For example, a small company borrows capital from a bank to buy new assets for their business, and in return the lender receives interest at a predetermined interest rate for deferring the use of funds instead of lending it to the borrower. Interest rates are normally expressed as a percentage rate over the period of one year
Usually it needs to reach a certain level of interest rate in order to entice them to invest. Indonesia for example, when the interest rate of Indonesia was 6.5%, the investors are still waiting for the rise to the rumored 6.75% because at that level, the return they get will be positive.
#Index Movement
This factor will see whether there is a certain pattern to the movement of stock prices among countries. For example at a certain date when the price of the stock in Indonesia rises, the price of stock in Philippines and Brazil will be somewhat affected (increase or decrease) by it or not.
IV. Previous Research
1. The Dynamics of Emerging Market Equity Flows (2001) by Geert Bakaert (Columbia University), Campbell R. Harvey (Duke University), and Robin L. Lumsdaine (Brown University).
This study is about the interrelationship between capital, returns, dividend yields and world interest rates in 20 emerging markets. to develop a better understanding of the relation between capital flows and asset prices. This study uses various model and calculations in order to investigate the things about capital market. Some of the calculations that they used are like presented below which purpose is calculation with world interest rate.
2. Analysis of Cointegration of Capital Markets of France, Germany, and United Kingdom by Hande Erdinc and Joniada Milla from the university of Nebraska, Omaha.
This study in particular, emphasizes the degree of integration of stock markets around the world. Those capital markets all over the world have become increasingly integrated and co-movements among major financial markets have been rising.
V. Analysis and Comparison
Between these three countries, the flow of information in Philippine regarding to the capital market is considered to be most limited. The Philippines should exert more effort to liberalize its economy to encourage more foreign and domestic investment, the International Monetary Fund said in a report that noted the country's capital markets are less open than other markets in Asia. Because of that, the market efficiency in Philippine is weak, where deeper analysis is needed in order to grasp their pattern. While the other two countries are semi strong and strong where public information is easy to be acquired and the analysis using those available data can be done accurately.
Interpreting from these graphs, we can see that the relation between the capital market of Indonesia and of Brazil is not that established. Putting the graphic of Philippine aside since it is quite similar to Indonesia’s, the Brazil’s Bovespa index is having a liquidity issue because the volume of the transaction keeps on dropping to the lower point.
While at the same time, Indonesia’s Jakarta Composite Index graph far differ from Brazil’s in a sense that although the volume of transaction is quite volatile, it doesn’t have any point where it drops altogether. This shows that the capital market of Indonesia’s quite liquid regardless of the events that are happening in the international region of another country.
From the graphs above we can see quite similarity in the movement of the stock price index between Indonesia, Philippine and Brazil. But the problem is that although it looks the same, it doesn’t truly mean they are connected with a clear pattern. Regardless of the movement in Philippine, because they are of one region, the movement of the stock closing price is just a hefty coincidence. The global recession in 2009 may play a part in the decrease of performance especially in the 34th month until the 40th for all three countries which support the theory unless some major event is happening, the correlation between the two capital market in Asia and the one in America is hard to be established
the return investment of all three countries are positive, with Indonesia 0.02100362, Philippine 0.01320801, and Brazil 0.01084204. Also the comparative beta relation between the 3 countries can be described as positive. It means that when 1 country’s capital performance increases, the other will also follow
VI. Conclusion
Looking and recapping various data acquired, the relation of the 3 countries’ capital markets naming Indonesia’s JSX, Philippine’s PSEi, and Brazil’s Bovespa Index, there is little relation that complement each other in the context of the capital market relation. As the previous study state that “Additionally, their economic structures are of the same character, and their relatively high level of development makes them possess the heaviest volume stock exchange markets in the European Union” based on this study, there needs to be some kind of similarity among countries compared.
The Philippine is quite similar to Indonesia in sense that it is of the almost same structure and that they are both the member of ASEAN. But Brazil, the far off America Latin country has little to do with South East Asian countries such as Indonesia and Philippine. Since in Brazil, everything is different, we can see from the volume of transaction there is completely incomparable to the Indonesian graphic. Not to mention the all the policy, interest rate, the difference in currency, and the particular events that will affect a certain capital market in certain country.
Also looking from the graph of the closing price in the country of Indonesia and Philippine we can establish a connection among them because they look most similar, different from the Brazil counterparts. In other words, in order for a country’s capital market to affect each other, they need to be in the same region and not too far off the area. Unless, that is, some significant event like just for examples the neverending conflict of Libya that ends with the loss of oil supply percentage that can be exported to the world or if, I hope it does not happen, the war between South Korea and North Korea were to happen.
Tidak ada komentar:
Posting Komentar