In today's construct of global economy it is crucial to understand what is occurring in the stock markets in other parts of the world. While these international stock markets may not impact us in any particular way they definitely represent an opening to invest your money.
International stock markets are generally made of two types: where the economy is very mature and where it is not. International stock markets are modeled very much like the US stock markets and are accountable for some quantity of the global economy trade.
In developing economies, the stock market is a barometer of how much the country is developing and in what sectors. Many investors stay apprised of certain international stock markets in order to capture potential markets. This is also considered a solid way to diversify a portfolio as many times, the investment gets a higher return.
BRIC (Brazil, India, China and Russia) represents the strong emerging economies of the 21st century with India falling in right behind. It's important to note that although the BSE (Bombay Stock Exchange) rose almost faster than any other stock market in the world, its meteoric rise has caused some to speculate that the bubble is doomed to burst thereby causing panic in the market.
Many other international stock markets apart from these five emerging economies have also climbed and now present sufficient opportunities to the overseas investors. In hindsight, it's important to remember that in recessions most equity markets around the world tend to have much higher correlations with each other than they usually do, even more so when multiple countries are in a recession at the same time.
Diversification has long been one of the tenets for sound investment. But never before has there been such a wide range of opportunities for diversification outside of the U.S. and those opportunities only seem to increase daily. For example, China's venture with capitalism means more prospects for U.S. investors who wish to tap into an ever-growing and potentially lucrative international stock market.
Investing in an international stock market has inherent risks associated with it. These include, but are not limited to, currency exchange fluctuation, government regulations, and the ever present potential for political and economic instability.