The Nikkei 225, often referred to as the Nikkei, is a stock market index that represents the performance of the 225 largest companies listed on the Tokyo Stock Exchange (TSE).
As one of the most widely followed equity indices in the world, the Nikkei 225 serves as a barometer for the health of the Japanese economy and the performance of the nation’s stock market.
What is the Nikkei 225?
The Nikkei 225 is a stock market index for the Tokyo Stock Exchange (TSE).
The Nikkei measures the performance of 225 large, publicly owned companies in Japan from a wide array of industry sectors.
Established on September 7, 1950, the Nikkei 225 is maintained and published by the Nihon Keizai Shimbun, a leading Japanese financial newspaper.
It is a price-weighted index, which means that each stock’s weight in the index is determined by its share price rather than its market capitalization.
How is the Nikkei 225 calculated?
It is a price-weighted index, operating in the Japanese Yen (JP¥), and its components are reviewed once a year.
As a price-weighted index, the Nikkei 225’s calculation involves adding up the share prices of all 225 component companies and then dividing the sum by a divisor.
The divisor is adjusted periodically to account for events such as stock splits, share issuances, and changes in the index’s components.
This approach differs from market capitalization-weighted indices, where each stock’s weight is determined by its market value relative to the total market value of all components.
Why is the Nikkei 225 important?
The Nikkei 225 is an important benchmark for investors and financial professionals who track the Japanese equity market.
As it comprises some of the largest and most influential companies in Japan, the index offers a comprehensive view of the country’s economic health and stock market performance.
The Nikkei 225 is also used as the basis for various investment products, including index funds, exchange-traded funds (ETFs), and derivatives, allowing investors to gain exposure to the Japanese market through a single investment.
What is the composition of Nikkei 225?
The Nikkei 225 covers a wide range of sectors and industries, providing a broad representation of the Japanese equity market.
Companies included in the index are typically leaders in their respective industries, such as automotive, technology, consumer goods, and financial services.
Some of the most prominent names in the Nikkei 225 include Toyota Motor Corporation, Sony Group Corporation, and SoftBank Group Corp.
The index is reviewed annually in October and its components can be updated to ensure it remains a relevant reflection of Japan’s largest and most influential companies.