What Is the Nikkei 225 Index and How Can You Trade It? IG International

Unlike the Nikkei, TOPIX is capitalization-weighted and tracks Japan’s largest firms by market capitalization listed in the First Section of the Tokyo Stock Exchange. While the Nikkei remains highly influential in the country’s economy, the TOPIX shows a more appropriate representation of price changes and incorporates the TSE’s largest companies. As of 2019, the Tokyo interest coverage ratio upsc Stock Exchange had 2,292 listed companies with a total market capitalization of US$5.67 trillion. The Nikkei index is one of the most established and respected international stock exchanges. Like the DJIA in the United States, it is a price-weighted index which makes it different from many other indexes which are weighted according to market capitalization.

What time does the Nikkei 225 market index open?

Originally, the index was administered by the Tokyo Stock Exchange but was taken on by the Nikkei financial newspaper in 1970. Understanding these indices helps global investors make informed decisions, illustrating the intricate interplay of economic factors and corporate performance. However, the bubble’s burst led to a prolonged period of stagnation and decline known as the “Lost Decades”. Since the 2008 global financial crisis, the Nikkei has been on a generally upward trajectory, albeit with periods of volatility. Japanese consumer goods companies, such as Uniqlo’s parent company Fast Retailing and Kao Corporation, are also part of the Nikkei index. These companies play an essential role in the domestic and international consumer markets.

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However, and perhaps more importantly, the vast majority of the Japanese stock marketplace is dominate by the companies sat at the very top of the market capitalization rankings. Buying and managing each individual stock in the Nikkei 225 is costly and impractical, with substantial tax implications. Individual investors can gain exposure through exchange-traded funds (ETFs) whose underlying assets correlate to the Nikkei 225. The index hit an all-time high in December 1989 at the height of the Japanese asset price bubble, reaching a value of almost 39,000, but as of February 2020 has never regained those heights. Indeed, since 2000 the index has experienced double digit year-on-year losses seven times, compared to just two times for the Dow Jones. The underlines not only the difference in long-term performance of the Nikkei 225 and other global indices but also the level of stock volatility that the Japanese index can exhibit.

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In addition to government bonds, the TSE also acted as an exchange for gold and silver currencies. The composition of the Nikkei 225 and the weighting of the shares included in it are reviewed once annually and adjusted when necessary. This responsibility falls to the Japanese business newspaper, Nihon Keizai Shimbun (Nikkei), which calculates and oversees the index. For example, you can take a position on the Nikkei index based on the direction that the Japanese yen moves. Since the yen and the Nikkei index have an inverse relationship, when the currency appreciates in value, the Nikkei price will take a hit.

Components of the Nikkei Index

As of December 2019, the technology and consumer goods sectors comprised about 70% of the index. When the Japanese government created an asset bubble in the 1980s, stock prices and land values skyrocketed. When the bubble was at its peak, the TSE accounted for 60% of global stock market capitalization. As the name suggests, Nikkei 225 comprises 225 of the largest and most liquid companies listed on the Tokyo Stock Exchange.

1. Diversification can come in the form of Nikkei-linked ETFs or individual Nikkei shares, which you can also trade on.
2. It includes not only the major industries but also smaller sectors, providing a more accurate representation of the overall economy.
3. ETFs that track the Nikkei and trade on the Tokyo Stock Exchange include Blackrock’s iShares Nikkei 225 and Nomura Asset Management Nikkei 225 Exchange Traded Fund.
4. Nikkei 225 comprises companies that rely on high levels of business activity to generate revenue; hence, any of these indicators can directly affect the index’s price.

The Nikkei is price-weighted, which means the index is an average of the share prices of all the companies listed. Because each company’s stock is weighted by its price per share, the Nikkei tends to be influenced by high-priced stocks such as technology stocks. The risks of loss from investing in CFDs can be substantial and the value of your investments may fluctuate.

Any examples given are provided for illustrative purposes only and no representation is being made that any person will, or is likely to, achieve profits or losses similar to those examples. DailyFX Limited is not responsible for any trading decisions https://www.1investing.in/ taken by persons not intended to view this material. Companies with higher stock prices exert more significant influence on the index’s value, even if their overall market capitalization is smaller than other companies in the index.

However, this doesn’t necessarily make the Nikkei 225 index an unworthy investment. While the above figures do make nervous reading, it is important to remember that investing is all about timing. For those not familiar with the Yen, that amounts to GBP£270 billion or US$357 billion. Outside of conventional equities, the Tokyo Stock Exchange also lists a number of other financial securities.

Like mutual funds, ETFs offer diversification through a single investment. Like the Dow Jones Industrial Average, the Nikkei 225 Stock Average is a price-weighted equity index. The ranking of companies is determined by stock price, which differs from other major indexes where market capitalization is used in calculations. Leveraged trading in foreign currency or off-exchange products on margin carries significant risk and may not be suitable for all investors. We advise you to carefully consider whether trading is appropriate for you based on your personal circumstances. It is not a solicitation or a recommendation to trade derivatives contracts or securities and should not be construed or interpreted as financial advice.

The Tokyo Price Index—frequently referred to as TOPIX—is another widely followed index on the Tokyo Stock Exchange. While the Nikkei is an index of 225 selected stocks from the TSE, the TOPIX is an index that includes all the stocks in the TSE. The index has been calculated since September 1950, retroactive to May 1949. Among the best-known companies included in the Nikkei index are Canon Incorporated, Sony Corporation, and Toyota Motor Corporation. © 2024 Market data provided is at least 10-minutes delayed and hosted by Barchart Solutions. Information is provided ‘as-is’ and solely for informational purposes, not for trading purposes or advice, and is delayed.