Market indices: a simple way to access global markets

When people talk about “the market,” they are often not referring to a single stock or company. In reality, they are usually talking about an index.

Instead of tracking the performance of one company, an index tracks the performance of many companies at once, giving investors a broad snapshot of how a market is performing. For example,

• the S&P500, one of the most widely followed indices in the world, tracks 500 of the largest publicly traded companies in the United States. 
• the FTSE 100 tracks the 100 largest companies listed in London. 
• the STOXX Europe 600 offers a broad overview of equity markets across Europe by tracking hundreds of companies from multiple European countries.

Indices such as the MSCI Asia ex Japan, MSCI World ex USA or the global MSCI World Index provide exposure to large groups of companies across multiple countries and regions.

In other words, indices help investors measure and track market performance at different geographic and sector levels.

Below is a simplified overview of some of the most widely followed stock market indices globally, each representing the largest companies listed in their respective markets.

Key examples include:

• S&P 500 (United States) – Tracks 500 of the largest publicly traded US companies and is widely seen as the benchmark for the US stock market.
• FTSE 100 (United Kingdom) – Represents the 100 largest companies listed on the London Stock Exchange.
• DAX (Germany) – Tracks the largest blue-chip companies listed in Germany.
• CAC 40 (France) – Follows the performance of 40 major French corporations.
• IBEX 35 (Spain) – Represents Spain’s largest listed companies.
• SMI (Switzerland) – Tracks the 20 largest Swiss companies, including several major pharmaceutical firms.
• Nikkei 225 (Japan) – One of the most widely followed Asian indices.
• KOSPI (South Korea) – Represents the broader South Korean stock market and includes major technology exporters.
• SSE Composite (China) – Tracks companies listed on the Shanghai Stock Exchange.
• Nifty 50 (India) – Tracks 50 of the largest and most liquid companies listed on India’s National Stock Exchange.
• Ibovespa (Brazil) – Tracks the largest and most actively traded companies on Brazil’s B3 stock exchange and is the main benchmark for the Brazilian equity market.
• S&P/ASX 200 (Australia) – Tracks the 200 largest companies listed on the Australian Securities Exchange and is the main benchmark for the Australian equity market.
• S&P/TSX Composite (Canada) – Represents the largest and most actively traded companies listed on the Toronto Stock Exchange, covering the majority of Canada’s equity market capitalization.
• Hang Seng Index (Hong Kong) – Tracks the largest companies listed on the Hong Kong Stock Exchange and serves as a key benchmark for Asian equity markets.

These indices serve as benchmarks for their national markets, helping investors track economic trends and market performance across different regions of the world.

Diversification

Indices are not just statistical tools used by analysts or economists. Over the past two decades, they have become one of the most accessible ways for investors to gain exposure to financial markets.

One of the main reasons for this popularity is simplicity.

For investors who do not want to spend time researching and selecting individual companies, index investing offers an efficient alternative. Instead of trying to identify the next winning stock, investors can simply buy the market itself.

When an investor buys an index, their investment is automatically spread across multiple companies and sectors. In some cases, it is also spread across different countries. If one company performs poorly, its impact on the overall index is usually limited because it represents only a small portion of the basket.

Diversification helps reduce the risk associated with holding individual stocks. This is one of the main reasons why index investing has become a cornerstone strategy for many long-term investor

Indices constantly evolve

Another important feature of indices is that they are not static, they constantly evolve!

The companies included in an index are regularly reviewed. Firms that grow, perform well and become more important within the economy gain more weight in the index. Meanwhile, companies that shrink, underperform or disappear are eventually replaced and/or removed.

The evolution of the US stock market offers a good example. Thirty years ago, technology companies played a relatively small role in major US indices. Energy companies dominated the market instead.

Today, the situation has changed dramatically. Technology giants now account for a significant share of the S&P500, with the so-called “Magnificent Seven” technology companies alone representing roughly a third of the index’s market value.

This constant renewal ensures that index investors are continuously exposed to the most dynamic sectors of the economy.

Combined with diversification, this makes index investing a powerful long-term approach.

While indices are built using similar principles, they are far from identical.

Each index reflects the structure of the economy it represents, and since economies differ across countries and regions, their indices also display different characteristics.

Take the United States. US indices today are heavily weighted toward technology companies.

The FTSE 100 is global and commodity-heavy. It includes major mining groups, oil producers and international banks, which means the index is highly sensitive to global demand and commodity prices. It is, in fact, more sensitive to matters outside the UK than inside.

Meanwhile, the STOXX Europe 600 contains a large number of industrial companies, banks and exporters that are closely tied to the global economic cycle.

Within Europe, each national index also has unique characteristics:

• Germany’s DAX has strong exposure to industrials and automotive companies.
• France’s CAC 40 includes major luxury brands that depend heavily on global consumer demand.
• Switzerland’s SMI is dominated by healthcare and pharmaceutical companies.

Elsewhere in the world, South Korea’s KOSPI, for example, is strongly weighted toward technology and export-driven companies, including major semiconductor manufacturers. Australia’s S&P/ASX 200 has a large exposure to mining and financials, reflecting the country’s role as a major commodity exporter and the importance of its banking sector. Brazil’s Ibovespa is also heavily influenced by commodities, with energy and mining companies playing a prominent role. In India, the Nifty 50 has significant exposure to financial services, technology and consumer companies, highlighting the country’s fast-growing domestic economy. Meanwhile, Japan’s Nikkei 225 includes many large industrial, automotive and electronics companies that are deeply integrated into global trade.

Because indices have different sector compositions, they tend to perform differently depending on economic conditions.

• When financial conditions tighten and economic uncertainty increases, investors often move toward defensive sectors such as healthcare, consumer staples and utilities. Indices with larger allocations to these sectors tend to be more resilient during economic slowdowns.
• When economic growth accelerates, cyclical sectors often outperform. Industrials, banks, construction companies and commodity producers tend to benefit when demand rises and economic activity strengthens. During these periods, indices with stronger exposure to cyclical sectors—such as many European markets—can outperform.

Beyond the economic cycle, broader global trends can also drive differences in index performance.

Over the past few years, for example, the S&P 500 has significantly outperformed many global markets.

Despite rising inflation and tighter financial conditions following the pandemic and the war in Ukraine, the US market rallied strongly on enthusiasm surrounding artificial intelligence and large technology companies.

Many European indices, which have greater exposure to banks, industrial companies and energy firms, did not benefit from this technology-driven rally to the same extent.

This means that choosing which index to invest in can be a way for investors to express a view on global economic trends, and build a investment strategy accordingly.

Investors have several ways to gain exposure to stock market indices.

The content in this article is provided for educational and marketing purposes only. It does not constitute investment advice or financial recommendations. 

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