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What is the Japanese Nikkei 225?

A Look at Japan's Version of the S&P 500

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Japan's economy is the third largest in the world, behind the United States and China. And its primary stock exchange is a very influential financial capital in Asia. The Tokyo Stock Exchange (TSE) has about 2,292 listed companies with a combined market capitalization of US$3.8 trillion as of December 2010, making it the third largest stock exchange in the world.

The Nikkei 225 is a blue chip index consisting of the largest stocks in Japan by market capitalization and liquidity. After hitting a peak of 38,957 in late December of 1989, the Nikkei 225 has erased much of its gains and fallen to just 8,618 as of October 2011. But still, the Nikkei 225 contains some of the most well-known companies in the world and remains an internationally-recognized index.

What Companies are in the Nikkei 225?

The Nikkei 225 is the most popular benchmark for the Japanese and Asian stock markets. The index consists of the 225 largest companies on the Tokyo Stock Exchange (TSE) by market capitalization and liquidity. These equities are subject to review annually and the results are made public each September by an independent audit committee.

The Nikkei 225 consists of globally-recognized companies like:

  • Sony Corp. (NYSE: SNE) - Sony Corporation is one of the world's largest manufacturers and vendors of electronic products worth over $19 billion.
  • Toyota Motor Corp. (NYSE: TM) - Toyota Motor Corporation is one of the world's largest automobile manufacturers and financiers worth over $100 billion.
  • Honda Motors Ltd. (NYSE: HMC) - Honda Motors Ltd. is one of the world's largest automobile manufacturers and financiers worth over $50 billion.
  • Kyocera Corp. (NYSE: KYO) - Kyocera Corporation is a manufacturer of mobile phones and communication technologies worth over $15 billion.
  • Toshiba Corp. (Pink Sheets: TOSBF) - Toshiba Corporation is one of the world's largest manufacturers of personal computers, laptops and electronics worth over $10 billion.

How to Invest in the Nikkei 225

There are several ways for international investors to gain exposure to the Nikkei 225 using exchange-traded funds (ETFs) trading on the Tokyo Stock Exchange (TSE). Meanwhile, international investors can also opt to purchase individual components of the index on the TSE. While some of these components trade as American Depository Receipts (ADRs) on U.S. exchanges, most are only available on the TSE.

Some common Nikkei 225 ETFs trading on the TSE include:

  • iShares Nikkei 225 ETF (TYO: 1329)
  • Nikkei 300 Stock Index Listed Fund (TYO: 1319)
  • Nikkei ETIF 225 ETF (TYO: 1330)

Some Alternatives to the Nikkei 225

U.S. investors unable to invest on the Tokyo Stock Exchange (TSE) also have many options to gain exposure to the Nikkei 225. The most direct way is by purchasing the MAXIS Nikkei 25 Index Fund (NYSE: NKY), but there are also many ETFs with broader exposure to Japanese equities. Moreover, some Japanese companies not listed on the Nikkei 225 may also have ADRs available in the United States.

Here are some popular ETFs with Japanese exposure:

  • Japan Hedged Equity Fund (NYSE: DXJ)
  • Japan Small Cap Fund (NYSE: DFJ)
  • S&P/TOPIX 150 Index Fund (NYSE: ITF)
  • IQ Japan Mid Cap ETF (NYSE: RSUN)
  • MSCI Japan Index Fund (NYSE: EWJ)

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