The Nikkei 225 is Japan’s most-watched stock market index. Consisting of 225 of the largest and liquid companies listed on the Tokyo Stock Exchange, it serves as a gauge for Japan’s economic health.
History of the Nikkei 225
In 1950, The Nikkei newspaper introduced the Nikkei 225 index. At that time it was known as the Nikkei Dow Jones Stock Average and consisted only of 225 stocks. Since then it has become the benchmark benchmark for Japanese equity markets.
Composition of the Nikkei 225
The Nikkei 225 index comprises 225 of the largest and most liquid companies listed on the Tokyo Stock Exchange. Companies are chosen based on various factors, including market capitalization and liquidity. As of January 2023, Fast Retailing, SoftBank Group, and Sony Corporation were the top three weighted members of this index by weight.
Calculation of the Nikkei 225 Index
The Nikkei 225 differs from many other stock market indices in that it isn’t weighted according to market capitalization. Instead, the index is price-weighted, meaning companies with higher stock prices have a greater influence over the index’s performance. Unfortunately, this may lead to distortions in the index as companies with lower stock prices receive less weighting.
Performance of the Nikkei 225
The Nikkei 225 index has a long-standing record of volatility, with several significant crashes throughout its tenure. In 1989, it reached an all-time high of 38,916; however, by 2009 it had plunged to a low of 7,055. Since then the index has recovered and been trading around the 30,000 level in recent years.
Investing in Nikkei 225
Investors can gain exposure to the Nikkei 225 through various methods, including exchange-traded funds (ETFs) and mutual funds. These vehicles offer investors a diversified portfolio of stocks that closely mirrors the index’s performance.
Conclusion
The Nikkei 225 is Japan’s premier stock market index and closely monitored by investors around the globe. Though it has a history of volatility, it remains an important barometer of Japan’s economic health and provides investors with access to some of Japan’s largest and most liquid companies.
