A Big Picture Explanation of What Affects the Direction of a Country's Stock Market
A BIG PICTURE EXPLANATION OF WHAT AFFECTS THE DIRECTION OF A COUNTRY'S STOCK MARKET. Investors can choose to earn returns through yields (interest payment) from bonds or dividends from stocks. Bonds (which are like loans) pay out a coupon (interest) on their principle. Stocks (not all) pay out dividends. But dividend payouts are not a certainty, and depends on the company's performance. The bond yield of a country is usually measured by the yield on its 10-tear bond. The dividend yield of a country is the dividend yield of its dominant stock market Index e.g. the SP500 or Singapore's STI. One measure of whether a country's stock market is still attractive is the difference (spread) between the dividend yield of its stock market and the yield on its 10 year bonds. Sovereign bonds are risk-free investments (theoretically) and so a choice between bonds and stocks is a choice between no risk and some risk but potentially higher gain. The bigger (on the positive side) th...