The stocks and indices that matter in Japan
This is the fourth of a multi part series on global indices.
Part one covered the UK’s FTSE 100 and FTSE 250, part two included the S&P 500 and Nasdaq in the US and part three looked at the Euro Stoxx 50 and DAX 30 indices in Europe.
Tokyo’s stock exchange has origins dating back to 1878 making it the second oldest in Asia while its $5.7trn market capitalisation makes it
the world’s third largest.
One of the most followed indices for Japanese investors is the Nikkei 225, often shortened to the Nikkei. It measures the performance of 225 blue-chip companies. The index has been calculated by the Nihon Keizai Shimbun newspaper since 1950.
The index hit an all-time high on 29 December 1989 during the country’s property bubble, closing at 38,915.
Today the index trades at 23,479, still some 40% below the peak reached 31 years ago.
Over the last year the index has gained 8.4% compared to 20% for the S&P 500 and 3.2% for the FTSE 100.
The index is re-balanced once a year in October.
Unlike stock markets in the West where companies are identified by a ticker name, in Japan each company has a number identifier. For example Fast Retailing is identified by the number 9983.
Another unusual feature about the Japanese stock market is that since 2013 the Bank of Japan (BoJ) has been steadily purchasing domestic exchange-traded funds (ETFs) and now holds more than three quarters of them.
In addition the BoJ is a top 10 shareholder in over 90% of companies of the Nikkei.
Unusually the index is calculated by reference to the price of each company’s share price rather than its market capitalisation.
For example Uniqlo owner Fast Retailing has a 9.2% weighting in the index and a market capitalisation of 6.1trn yen, ($55bn), twice the weight of the bigger Softbank Group with its market capitalisation
of 11.5trn yen ($100bn).
This is because the former has a stock price of 59,990 yen compared with just 5,351 yen for the latter.
The largest company measured by market capitalisation is car manufacturer Toyota Motor Corporation ($188bn) but its index weighting is only 1.1%. Toyota Motor is 1,880 times bigger than the smallest company in the index, textiles company Unitika with its $100m market cap and 0.01% weighting.
Tech heavy exporters
The index is dominated by the technology sector which has a 47% weighting and consumer goods with a 24% weighting.
Financials and utilities are the minnows of the index representing around 2% each.
The Japanese economy is strongly dependent on the export sector and this means that the value of the Japanese yen has a big impact on the Nikkei. If the yen weakens, it makes exported products cheaper and pushes up the share prices in the index while a stronger yen has the opposite effect.
Exchange-traded funds tracking the index include iShares Nikkei 225 ETF (0MO3).