The Nikkei 225, commonly called the Nikkei index, is the most popular stock index in the Japanese market, it is made up of the 225 most liquid securities listed on the Tokyo Stock Exchange. It is one of the largest equity markets in the world, both for the number of companies listed on its stock index and for their quality. It is also part of a good part of the investment funds that are based on the stock market. Being in all cases one of the reference points for small and medium international investors.
Reviewing the history of this important stock index a little, we see that the so-called Nikkei index was born in 1971 and is calculated by the Japanese economic and business newspaper Nihon Keizai Shinbun, from whose initials the name Nikkei comes. From where you can find all kinds of companies, and of great quality, from the most innovative technological values to the traditional electricity companies. Virtually all companies are included in this index of Japanese equities. To the point of being the most important in the Asian area and that its trading schedule becomes a reference for the stock markets of the old continent. In both bullish and bearish trends.
From this brief review of the index of the Japanese stock market, it must be said that it is true that its values are somewhat volatile with respect to the European stock market. With a difference that can reach up to 5% between its maximum and minimum prices that makes it very attractive to a good part of the traders in the financial markets. On the other hand, it should not be forgotten that operating in this equity market involves more demanding commissions for Western investors. This monetary effort implies that investments must be made profitable with wider margins. With commissions that can be up to 0,6% on the invested capital.
Nikkei 225: sideways trend
At the moment the Nikkei 225 is in a lateral trend that is going to cost it to come out in one direction or another, as a result of the adjustments caused by the expansion of the coronavirus around the world. Beyond the rebounds that it may have had in recent weeks and that therefore implies that small and medium investors have to wait a little time before they open positions in this index of Asian equities. In a way it is something similar to what is happening to its economy and that has been stagnant for some years in one of the clear examples of what it is to be without economic growth. And where the Nikkei 225 is one of its most relevant sources.
While on the other hand, there is no doubt that the Nikkei 225 can be an alternative for small and medium investors in the face of a depletion of western financial markets. Provided that a certain level of learning by users is taken into account in this stock market on the other side of the planet. Because it cannot be forgotten that from time to time it can be used to make the operations that we are going to carry out in the equity markets profitable. Whatever the level of investment and especially of the securities in which we take positions from now on. Because at the end of the day it is about getting out of these trades on the stock market.
High component of technology
In any case, the economic sector that has a greater weight in the Nikkei is the technology sector, followed by the consumer goods sector. Other relevant companies that make up the Nikkei are: Yamaha, Toshiba, Suzuki Motor, Sony, Nissan Motor, Pioneer, Bridgestone or Konica. It is a good destination for equity users who want to invest their capital or savings in this financial asset class. With a greater presence than in the equities of Spain, with a lot of difference in what to the offer that this important index of the international stock market presents. On the other hand, it must also be emphasized that this is a reference source for investors who have more experience in this kind of operations within relationships with the always complicated world of money.
Another aspect that must be addressed when talking about the Nikkei is the one that has to do with the flexibility of your investment, in the sense that you can choose any company. With a very wide diversification, much higher than in the equities of our country, and online than in the US or German, to cite just a few relevant examples. To the point that there are no limits on investment by stock market users. This fact means that you can choose any sector and through certainly relevant companies that have a business volume that is considered very high and important within the investment sector. From this point of view, small and medium investors have no problem for users to make a decision about what are the best decisions they can make at any given time.
Barometer of the Japanese economy
From no point of view it cannot be doubted that this index in the international stock market can be considered as a remarkable barometer of the Japanese economy. To the point that it reflects the economy of this Asian country with great reality. As few international markets reflect it at this precise moment, with 225 values that correspond to very powerful companies with great liquidity. In other words, it is very easy to adjust entry and exit prices by financial agents. For this reason, it is not surprising that some of these securities make up the portfolio of many of the investment funds that have been developed by international management companies. This is therefore one of its most relevant advantages that you can detect from the beginning and unlike other indices on the stock market in the world.
While on the other hand, it cannot be forgotten that the Japanese index has a great impact on the rest due to its great specific weight on the general economy. A fact that makes it very reliable to know in depth the real state of the economy and how the world of investment could not be otherwise. In this sense, it is very indicative even though it is so far from the point of view of its geographical location. Just for the fact that it is a financial market that is open while all of us are asleep and we are not aware of its evolution in each trading session. In any case, it is one of the squares that we have to be aware of every day as a reference to what we must do at all times. Both to sell and buy the shares in the equity markets of any country in the world.
With a mechanism that is the same as other international places since it does not present any difference and therefore does not require a different learning, such as the financial market of our country. At least to take it into account from now on to carry out any kind of operations to make your available capital profitable.
Integrated in ETFs
The Nikkei 225 Stock Average is Japan's leading stock index and a barometer of the Japanese economy. It evaluates the performance of 225 large Japanese companies, covering a wide range of industries. Generally regarded as the Japanese equivalent of the Dow Jones industrial average, it includes the top 225 top-tier companies listed on the Tokyo Stock Exchange. Although you cannot invest directly in an index, you can gain exposure to the underlying stocks within the Nikkei 225 through an exchange-traded fund (ETF). In this sense, the purchase and management of each of the Nikkei 225 shares is expensive and impractical, with significant tax implications. Individual investors can gain exposure through exchange-traded funds (ETFs), whose underlying assets correlate to the Nikkei 225.
Unlike mutual funds, which are priced at the end of the day, ETFs are traded throughout the day, so their prices fluctuate like stocks. Like mutual funds, ETFs offer diversification through a single investment. They have lower expenses than actively managed funds. Various ETFs that track Nikkei 225 trading on the Tokyo Stock Exchange. They include the iShares Nikkei 225 ETF from Blackrock Japan, the Nikkei 225 Exchange Traded Fund (NTETF) from Nomura Asset Management, and the Daiwa ETF Nikkei 225 from Daiwa Asset Management.
Buy and sell investments
To trade these ETFs, one must open an account with a brokerage agency that allows them to buy and sell unlisted investments in the US Fidelity Investments and ETrade Financial Corp. (ETFC) are among the discount brokers. that offer international trade accounts. Be aware that ETF trading in your local markets has complications. ETFs listed on the Tokyo Stock Exchange are denominated in yen. In addition to monitoring the performance of the Nikkei 225, you must take into account fluctuations in the exchange rate between the yen and the dollar.
The UK, France, Germany, Switzerland, Italy and Singapore also offer ETFs that track the Nikkei 225, some of which are listed on the Tokyo Stock Exchange.
With strict business management
In times of instability in the financial markets, there are many options that investors can choose to make their available capital profitable. One of the most relevant at the moment is the one represented by this market in international equity markets. From this point of view, it must be emphasized that political stability, strict business management and low valuations make it an excellent time to invest in the Japanese market. Despite being the third largest economy in the world by gross domestic product, Japan is an afterthought for many investors. But not being exposed to Japanese stocks deprives investors of a market that can provide them with strong dividend income and relative stability.
Nikko Asset Management predicts that the Nikkei 225 will rise about 16% between now and August 2020, compared to 5% for the S&P 500. John Vail, Nikko Asset Management's chief global strategist, attributes this projected outperformance to a combination of low valuations and momentum. The twelve-month price and earnings ratio seen in the first week of July 2019 was close to record lows, according to Bloomberg figures.
Dividend payments have also increased as a result of corporate governance reforms that emphasize caring for shareholders. For example, TOPIX's payment rate has jumped to around 30% as of May 9, 2019, from around 17% in 2004, according to Bloomberg data. This makes Japanese stocks attractive, particularly for investors looking to generate income. Kathy Matsui, vice president of Goldman Sachs Japan, said that in addition to attractive valuations, earnings are likely to rebound even with a stronger yen thanks to continued GDP growth in Japan and around the world. Goldman Sachs forecasts 6% earnings per share growth for the Japanese market in 2019 and 2020, respectively, even if the yen has an average rate of 105 to $ 1.
Growth stimuli
The engine of much of this growth has been corporate governance reform and Abenomics. When Shinzo Abe took over as Japan's prime minister in December 2012, he proposed an economic policy called Abenomics to help spur growth. Abenomics relies on the "three arrows" of monetary easing, fiscal stimulus, and structural reforms. Mr. Takeda said the economy is now at the point where structural reforms are coming to the fore, because monetary easing and fiscal stimulus have helped fuel economic growth over the past six years.
One of the main pillars of structural reform has been corporate governance reform in Japan. In 2014, the Japanese government's fiscal watchdog, the Financial Services Agency (FSA), introduced a new business administration code. The code was intended to counter the perception that institutional investors were too welcoming to the management of companies.
New guidance was issued in 2017 to improve information disclosure and supervisory practices. These measures, Mr. Vail said, give the Japanese market a structural advantage over competitors, because only the United States comes close when it comes to serving shareholders. "This has resulted in much higher corporate profit margins, much higher payments to shareholders and a much better relationship with shareholders overall," said Mr. Vail. “There have always been some very good companies, but most of them treated equity investors like second-class citizens. That has completely changed, so not only are companies forced to pay more attention to shareholders and institutions that manage money in Japan - shareholders are now much more proactive in the way they vote and interact. with companies ».
Invest in the Japanese market
Investors outside of Japan have several ways to invest in the Japanese market. American Depository Receipts (ADRs) are always an option for investors looking to add some of the large Japanese conglomerates to their portfolios, but institutional investors generally prefer mutual funds or exchange-traded funds due to the diversification they offer.
There are 52 mutual funds and exchange-traded funds domiciled in the United States that focus on Japan, according to data from Refinitiv's Lipper. In addition, Japanese investors also use exchange-traded funds to access their own market, including several that track the Nikkei 225 index. Investors are starting to pay attention to the Japanese market because of all the positive aspects of structural reform, as well as to political stability. Vail noted that Japan is far more stable than the United States and China, which are currently in a trade war, and the European Union, which has been mired in turmoil since the Brexit vote in 2016. Despite this, Japanese stocks remain underbought, he argues, leaving an opening for investors seeking stability, dividend income and select growth opportunities. The 2019-month price-to-earnings ratio seen in the first week of July XNUMX was close to historic lows, according to Bloomberg figures.