The Nikkei 225: Getting to grips with Japan’s top stock market index

Julie Brownlee, Fsp Invest, 18 Nov. 2014

Tags: nikkei 225, nikkei, japan stock market, japanese stock market, what is nikkei 225, sectors of nikkei 225,

Yesterday, you might have seen financial news reports about Japan’s economy entering into a recession. This followed the release of economic growth figures.

The news sent its stock market into a tailspin. The Nikkei 225 Index lost over 2% as the market digested the news.

So what exactly is the Nikkei 225 Index? And what sort of stocks make up this index?

Let’s take a closer look…

What is the Nikkei 225?

The Nikkei 225 Index is the index of Japan’s top companies. You’ll often see the performance of this index referred to if you watch the financial news.

This is a key index of the eastern markets, which open before London, South Africa and American stock markets. It can hint at the direction markets will take elsewhere that trading day.

The Nikkei 225 Index’s biggest sector is industrials. This makes up over 26% of it, as you can see in the chart below…

Chart of sectors on the Nikkei 225

Many of these industrial companies are exporters.

The next biggest sector on the Nikkei 225 is consumer goods. It makes up over 19% of the index. Over half of this sector is car manufacturers and car part makers.

The rest of the consumer goods sector is personal and household goods, and food and beverage sellers.

The Nikkei 225 has a very small financial sector

What is very different about the Nikkei 225 in comparison to many of the world’s leading stock market indexes is the rather small financial sector. This only accounts for 6% of the index.

The Nikkei 225 is very sensitive to what’s going on in the economy. Over 71% of the companies in it are cyclical.

The index is also price weighted. What this means is that a share with a higher price will comprise a bigger part of the index than one costing less.

So there you have it, Japan’s top stock market index, the Nikkei 225.

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