The Nikkei 225, often referred to simply as the Nikkei, is a stock market index that tracks the performance of Japan's top 225 publicly-traded companies on the Tokyo Stock Exchange (TSE). It is widely regarded as the benchmark index for Japanese stocks, much like how the Dow Jones Industrial Average (DJIA) is the benchmark index for US stocks.
The Nikkei is a price-weighted index, which means that the index's value is based on the stock prices of its constituent companies. Companies with higher stock prices have a greater influence on the index's overall value, while companies with lower stock prices have a smaller influence. This is in contrast to other indices, such as the S&P 500, which are weighted by market capitalization.
The Nikkei was first calculated in 1950 by the Nihon Keizai Shimbun (Nikkei), Japan's largest financial newspaper. At the time, it consisted of only 225 stocks, and the index's value was calculated by adding up the stock prices of its constituent companies and dividing by the total number of stocks. Today, the Nikkei still consists of 225 stocks, but its calculation method has been modified to take into account factors such as stock splits and changes in the composition of the index.
The Nikkei's constituent companies are selected by the Nikkei's Index Committee based on various criteria, including market capitalization, liquidity, and sector representation. The index is reviewed annually, with companies being added or removed based on their performance and adherence to the selection criteria.
As of March 2023, the Nikkei's top 10 constituents by weight are:
Fast Retailing Co., Ltd. - 9.08%
SoftBank Group Corp. - 5.51%
Sony Group Corp. - 4.08%
Toyota Motor Corp. - 3.91%
Nintendo Co., Ltd. - 3.73%
Keyence Corp. - 3.51%
Mitsubishi UFJ Financial Group, Inc. - 3.46%
Tokyo Electron Ltd. - 2.77%
Takeda Pharmaceutical Co., Ltd. - 2.54%
Hitachi, Ltd. - 2.49%
The Nikkei is widely used as a barometer of the Japanese economy and investor sentiment towards Japanese stocks. It is watched closely by investors and analysts around the world, as movements in the index can indicate trends in global markets and the global economy as a whole.
One notable feature of the Nikkei is its tendency towards volatility. The index has experienced several major fluctuations over the years, including a peak in 1989 followed by a prolonged period of decline known as the "Lost Decade." The Nikkei has also been affected by various external factors, such as the 2011 earthquake and tsunami in Japan and the COVID-19 pandemic.
Investing in the Nikkei can be done through various financial instruments, such as exchange-traded funds (ETFs) and mutual funds that track the index. However, as with any investment, there are risks involved, and investors should carefully consider their investment objectives and risk tolerance before investing in the Nikkei or any other market.
In conclusion, the Nikkei 225 is a stock market index that tracks the performance of Japan's top 225 publicly-traded companies on the Tokyo Stock Exchange. It is a price-weighted index and is widely regarded as the benchmark index for Japanese stocks. The Nikkei is closely watched by investors and analysts around the world and can indicate trends in global markets and the global economy.
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