What is the Nikkei 225 Index?
The Nikkei 225 is one of the most well known Japanese benchmark index. Unlike the Chinese stock market indexes. There are a number of index funds that tracks the major Japanese equity indexes.
Similarly to the Dow Jones Industrial average, the Nikkei index is calculated on a price weighted basis of the 225 largest Japanese stocks on the Tokyo stock exchange.
The main Japan index includes 225 of the largest Japanese corporates, the index provides a good coverage of the Japanese equity exposure with like NTT DOCOMO in Telecoms, Sony in Consumer Electronics, Mitsubishi and Toyota in manufacturing.
The Nikkei index peaked in the late 1990s during the Japanese stock market bubble and only recently reached new highs.
Nikkei Index Funds
iShares MSCI Japan ETF (IJP) is the only exchange traded fund for Australian investors and track the return of the Nikkei 225. Investors in the fund will have an unhedged USD/JPY exposure.
How to short the Nikkei 225 Index
There are no ETF on the ASX that provides the inverse or short Nikkei index. Investors wanting a Nikkei short ETF can create a similar exposure from either shorting the Nikkei Index futures contract listed on the CME or directly short the Nikkei index funds like NKY.
There is also no leveraged long Nikkei ETFs.
Japanese Market Forecast
It is no secret that Japan has been in the doldrums in the last 2o years for equity investors. Since the election of Shinzo Abe and the turnaround driven by Abenomics.
The Japanese stock market had a great 2012 and 2013. With the Yen vs Dollar falling from 80 to 110 JPY per US dollar, it has support Japanese corporate profitability and return on equity.
Current economic environment is positive for investors and will continue to do so as economic growth and fighting deflation is the most important economic policy consideration of the current government.
Aside from the growth in exports through lower Yen. The domestic economy will also be supported through the preparation of Tokyo 2020 Olympics. Commercial office rental and construction has been ramping up in the revitalization of new Olympic areas.
All of the above is conditional on the BOJ and the Japanese government to come through in the implementation of Abenomics. The market has high expectation and so far policy makers has delivered. But they would still need to follow through with economic reform to ensure Japan’s growth engine will continue.