Why does the US market affect the ASX?

[deanoman]

People keep telling to look out for what the US is doing as it affects our stocks. Im not doubtingit but my question is why does it affect us!

 

[Michael9]

Good question. The American economic footprint is sasqwatch size and their big corporations are global so there's some heavy momentum there. However, Australia has a robust economy with a long term positive outlook thanks to commodities and energy, so how come when the rest of the worlds' markets go down an average of 10% we go down 13%? (Alan Kohler on the ABC tonight). Our financial sector is well regulated and is (on the whole) on safe ground but gets disproportionally hammered. Is decoupling just balm for the souls of non-American financiers or a real possibility? Is our market reaction just another form of cultural cringe?

 

[disarray]

you'd need to follow the money trail. when the stock market booms and busts you want to know where is the money coming from. is it local money from our banks / super funds? is it international funds? is it hedge funds? foreign soveriegn companies? ravening hordes of mums and dads? with enough information we could probably come up with a reasonable theory.

i'd be interested to know the source percentages for the money thats sloshing around our market at any given time. if theres a reasonable amount of asian money in our market then that would increase volatility more than if the money was local to australia. american movements would have a greater impact if the money was more mobile and not rooted in the country. imo not being an economist and all.

 

[Timmy]

so how come when the rest of the worlds' markets go down an average of 10% we go down 13%?

I wonder if it is something to do with lower levels of liqudiity in our smaller market compared to other bigger, deeper, markets? How does the NZ market fare, by my reasoning it should be even more volatile? And when the rest of the world's markets go up 10% do we go up 13%?

 

[roland]

One wonders if we had 24/7 stock markets, would the current overnight performance of the US markets have as much of an effect on ours?

Ignoring the obvious money trail as Disarray mentioned, the US performance, in lieu of anything else, is an obvious lead in to market direction. Since the US versus world cap is such a large percentage of the total financial money markets, then other markets will follow.

OK, I feel I am starting to rave on mindlessly here, get over it - if the US market has a big downer, then we will too - at least we have a major advantage of knowing what's going to happen before it does

 

[alwaysLearning]

I asked a similar question here before but no one said anything lol so here is my question again in quotes below:

Is it a co-incidence that the all ords(xao) and FTSE 100 basically look identical in chart format? That is, the same basic curves up and down on both graphs look essentially the same over the period Dec 2007-May 2008??

I suppose the companies that make up the index for the FTSE100 are mostly present in the all ords as well, but I'm still surprised that the graphs look basically identical.

 

[roland]

I asked a similar question here before but no one said anything lol so here is my question again in quotes below:

here is a challenge alwaysLearning - have a go at answering this question yourself. Have a go, what's your interpretation?

 

[alwaysLearning]

here is a challenge alwaysLearning - have a go at answering this question yourself. Have a go, what's your interpretation?

well it's not just the FTSE100 either. I mean, I looked i think it was David Jones chart it it too was virtually the same curves up and down. It was essentially the same chart has the all ords and FTSE100.

Well ok, I don't have much of a clue about anything yet since I'm new to all of this but I'll have a go.

I think that there are large companies that own shares etc in many stocks and that they are managing this portfolio as a single entity. So if they get scared, then they are basically selling off a certain amount from their entire portfolio. This in turn causes several stocks like say BHP and possibly even something like David Jones or whatever to take a 'dip' on their charts (respectively) simultanously.

But I still don't know why the ASX follows the DOW so closely.