New Nikkei Index Breaks With Tradition

February 24, 2014

The Japan Exchange Group and Nikkei Inc. launched a jointly developed index in early January.

The stock exchange group and the newspaper publishing company teamed up to create the JPX-Nikkei Index 400. The aim is to make the Japanese market more attractive to investors compared with other traditional market-cap-weighted benchmarks like the Topix.

The new index tracks 400 companies based on return on equity (ROE), governance, size and liquidity. Index constituents must be listed for more than three years and not have liabilities that exceed assets over the past three years. Liquidity is determined by market capitalization and trading value over the same time frame.

According to research from Goldman Sachs, the index will exhibit a higher ROE, lower price-to-earnings ratio and a higher dividend yield than the Topix.

The JPX-Nikkei Index 400 will have decreased weightings in financials, construction, power and gas compared with the Topix, and will have a free-float market cap of 1.5 percent per constituent.


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