Nikkei

Published on :

21 Aug, 2024

Blog Author :

Edited by :

Reviewed by :

Nikkei is a leading stock market index in Japan, tracking the performance of 225 large, publicly traded companies listed on the Tokyo Stock Exchange. The index is maintained and published by Nihon Keizai Shimbun Inc. and is considered a benchmark of the Japanese stock market and economy.

It is a stock index that has been prevalent since the Second World War. It is a popular price-weighted index, and its components are reviewed annually. Furthermore, these stocks are highly liquid from the Tokyo Stock Exchange prime market, and companies might lose their positions due to poor performance during the periodic review.

Nikkei Meaning

The Nikkei 225 is an index of the top 225 blue-chip stocks listed on the Tokyo Stock Exchange and is widely used as a benchmark to measure the performance of the Japanese stock market.
It is a relevant and widely followed equity index in Japan and a barometer of the Japanese economy.
The Nikkei futures are traded on international exchanges such as the Chicago Mercantile Exchange (CME) and the Singapore Exchange (SGX).
Nikkei futures can be used for both speculation and hedging purposes, allowing investors to speculate on or hedge against the future value of the Nikkei 225 Stock Average.

Nikkei Explained

The Nikkei 225 is a major stock market index in Japan and consists of stocks of 225 Japanese public companies. The stocks listed in the index are considered to be highly liquid, meaning that they can be easily bought and sold in large quantities without significantly affecting their market price. The word "Nikkei" is derived from the name of a famous Japanese economic newspaper, "Nihon Keizai Shimbun."

The history of this index dates back to Japan's mid-20th century, around World War II. The first calculation happened on May 16, 1949, when the Tokyo Exchange reopened after the world war. Officially, the index started on September 7, 1950, when the "Nihon Keizai Shimbun" newspaper published the average performance of 225 companies. The Nikkei stock calculation became popular in 1970. However, during the 1980s, a major crash in the Nikkei Group happened.

Technology stocks make up a significant percentage of the index in the Nikkei market. The main objective of this index is to maintain long-duration continuity and to reflect the changes in the Japanese industry. As per the Japanese script, it is officially known as "Nikkei Heikin Kabuka" or "Nikkei Heikin." The management conducts "Periodic review" and "Extraordinary Replacement" every year. While the former happens twice and the latter occurs once. It happens among 36 industries, re-classified into six sub-sectors.

Eligibility Criteria

To be eligible for inclusion in the Nikkei 225 Index, a company must meet the following criteria:

Listed on the First Section of the Tokyo Stock Exchange (TSE): Companies must be listed on the First Section of the TSE, which is the exchange's main board and includes large and well-established companies.
Market capitalization: Companies must have a high market capitalization.
Liquidity: Companies must have a high level of trading liquidity, measured by the number of shares traded on average in a given period.
Publicly available information: Companies must provide publicly available information on their financial and business performance.
Free float: Companies must have a minimum free float or the portion of freely tradable shares, not restricted by cross-shareholdings or other factors.
Sector representation: The index is designed to represent the Japanese stock market, including companies from various sectors. The management of the Nikkei 225 periodically reviews the sector representation of the index and makes changes as needed to ensure that it accurately reflects the overall market.

How To Invest In Nikkei 225?

Some of the ways to invest in the Nikkei 225 are the following:

Buy stocks of the companies listed in the Nikkei 225: An investor can purchase stocks of the companies listed in the Nikkei 225 directly through a broker or an online trading platform.
Invest in a Nikkei 225-linked Exchange Traded Fund (ETF): An ETF tracks the performance of a specific index, including the Nikkei 225, and allows investors to gain exposure to the index through a single investment.
Trade Nikkei 225 futures contracts: Investors can trade Nikkei 225 futures contracts on international exchanges such as the Chicago Mercantile Exchange (CME) and the Singapore Exchange (SGX).

It's important to note that investing in the stock market, including the Nikkei 225, comes with risk, and it's crucial to conduct thorough research and seek professional advice before making any investment decisions.

Chart

The above graph shows data from March 2022 to January 25, 2023.

Nikkei vs TOPIX vs S&P 500

The Nikkei 225 is a well-known index of 225 large publicly owned companies listed on the Tokyo Stock Exchange, the TOPIX index tracks the firms listed on the first section of the Tokyo Stock Exchange, and the S&P 500 is an index of the top 500 large-cap companies in the United States. All three significantly impact the stock market of their respective countries and can also affect stock markets in other countries.

Basis	Nikkei	TOPIX	S&P 500
Exchange(s)	Tokyo Stock Exchange	Tokyo Stock Exchange	NYSENASDAQCboe BZX Exchange
Type	Price-weighted index	Capitalization weighted index	Capitalization weighted index
Companies	225 large, publicly-owned companies	All firms in the first section of the Tokyo Stock Exchange	500 large American companies.

Frequently Asked Questions (FAQs)

Is Nikkei relevant in the world?

It is considered a relevant index worldwide, particularly in Asia. It is widely followed by investors and financial market participants globally as an indicator of the Japanese economy and a benchmark for Japanese equities. It is also one of the oldest stock market indices in the world and has a long history of tracking the performance of Japanese blue-chip stocks.

What are Nikkei futures?

Nikkei futures are financial derivatives contracts that allow investors to speculate on or hedge against the future value of the Nikkei 225 Stock Average, an index of the top 225 blue-chip stocks listed on the Tokyo Stock Exchange. These futures are traded on the Chicago Mercantile Exchange (CME) and the Singapore Exchange (SGX).

Why did the Nikkei crash happen?

In the late 1980s, Japan's monetary policy was indeed accommodative, which led to the growth of an economic bubble characterized by inflated real estate and stock market prices. The monetary easing policies of the time, combined with overconfidence and speculation in asset and stock prices, contributed to the bubble. The subsequent bursting of the bubble led to a tightening of Japan's monetary policies and a crash in the Japanese stock market index.