Stock Exchanges Explained

When you see a figure like 38,605.53 next to a stock exchange, like the Nikkei 225 in Japan, it’s a snapshot of how well the stock market is doing at the end of the trading day. But to understand what that really means, let’s start from the basics.

What is a Stock Exchange?

A stock exchange is like a marketplace for buying and selling ownership shares of companies. Think of it as a big, virtual bazaar where people trade pieces of companies instead of physical goods. In this market:

• Companies list their shares, which represent small parts of their business.

• Investors buy and sell these shares, hoping the value will go up.

Famous stock exchanges around the world include the New York Stock Exchange (NYSE) in the US, the Nikkei 225 in Japan, and the FTSE Bursa Malaysia KLCI in Malaysia.

Why Do Countries Have Stock Exchanges?

Countries have stock exchanges because they help grow the economy. Here’s how:

1. Funding for Companies: When companies need money to grow, they can “go public” and sell shares on a stock exchange. This gives them the funds to invest in new projects, hire more people, and develop new products.

2. Investment Opportunities: People can invest their money in businesses, allowing their savings to potentially grow as companies succeed. This is how regular people and large investors (like banks) can put their money to work, rather than just saving it in a bank.

3. Economic Growth: When companies grow and hire more workers, it boosts the entire economy. More jobs and more business activity lead to a stronger economy overall.

What Do The Numbers Mean?

When you see 38,605.53 for the Nikkei 225, here’s what it means:

• The Nikkei 225 is an index, a way to measure how well the biggest companies in Japan are performing. It includes the top 225 companies traded on Japan's stock exchange.

• 38,605.53 is the index value. This number represents the combined value of all those 225 companies at a given time.

If this number goes up from the previous day, it means most of these companies are doing well and their stock prices have gone up. If the number goes down, it means those companies’ stock prices fell. So, 38,605.53 is essentially a “score” showing how investors feel about Japan’s biggest companies.

Why Do These Numbers Matter?

These figures matter for two big reasons:

Economic Health Indicator: When stock indexes like the Nikkei 225, S&P 500, or KLCI are rising, it’s often a sign that companies are performing well, and confidence in the economy is strong. A falling index, on the other hand, might suggest economic struggles or worries.

Investor Decisions: Investors use these numbers to make decisions. If the Nikkei 225 is climbing, investors might see it as a sign that now is a good time to buy Japanese stocks. If it’s falling, some might sell to avoid losses.

Why Are Stock Markets Important?

For the Economy: A healthy stock market usually means companies are thriving, which leads to more jobs, spending, and innovation. All of these are good for the country's economic health.

For Investors: Stock markets give people the opportunity to invest their money and earn a return. This can help people grow their savings faster than if they just left it in a bank.

Major Stock Exchanges in Asia Explained

Nikkei 225 (Japan)

What is it: The Nikkei 225 is Japan's leading stock index, tracking the performance of 225 of Japan's largest publicly traded companies. It’s similar to the Dow Jones in the US.

How it works: The Nikkei 225 averages the share prices of the top 225 companies on the Tokyo Stock Exchange, with higher-priced shares having more influence on the index’s overall movement. Companies like Toyota, Sony, and Nintendo are included in this index.

Why it matters: The Nikkei 225 shows how Japan's biggest companies are performing. Since Japan is a major global economy, the index is watched worldwide as an indicator of Japan’s economic health and stability.

Hang Seng Index (Hong Kong)

What is it: The Hang Seng Index represents the top 50 large companies listed on the Hong Kong Stock Exchange. It’s the main indicator of Hong Kong’s stock market performance.

How it works: The index gives more weight to companies with higher “market capitalization” (total market value). Major sectors like finance, tech, and utilities are represented, including companies like Tencent, HSBC, and Alibaba.

Why it matters: The Hang Seng Index reflects the strength of Hong Kong’s economy and is closely linked to China’s economy as well. Investors use it to gauge the health of Chinese-linked companies.

Shanghai Composite (China)

What is it: The Shanghai Composite is China’s most widely followed index, including all stocks (both A-shares and B-shares) traded on the Shanghai Stock Exchange.

How it works: It calculates the combined value of companies listed on the Shanghai Stock Exchange, focusing on sectors like industrials, tech, and consumer goods. This index is heavily influenced by Chinese government policy due to state-owned company shares.

Why it matters: The Shanghai Composite shows the performance of China’s domestic companies. Investors watch this index to understand China’s economic direction and to see how policy changes are affecting the market.

S&P/ASX 200 (Australia)

What is it: The S&P/ASX 200 is Australia’s benchmark stock index, tracking the top 200 companies listed on the Australian Securities Exchange.

How it works: The index weighs companies by market value, covering key sectors like mining, financial services, and healthcare. Major companies include BHP Group, Commonwealth Bank, and CSL.

Why it matters: Since Australia is rich in natural resources, the ASX 200 often reflects global commodity prices and demand. It’s also a key indicator of Australia’s economic health and is widely followed by international investors.

KOSPI (South Korea)

What is it: The KOSPI (Korea Composite Stock Price Index) tracks the overall performance of South Korea’s stock market and is based on all companies listed on the Korea Exchange.

How it works: Like other indexes, the KOSPI gives more weight to larger companies. Samsung, Hyundai, and LG are some of the biggest players, and the index is known for its tech-heavy composition.

Why it matters: The KOSPI is a great indicator of South Korea’s economy, particularly its technology sector. It’s closely watched by investors globally because South Korea is a leader in tech and manufacturing.