What Is the Tokyo Price Index (TOPIX)?
Let me tell you about the Tokyo Price Index, or TOPIX as it's commonly known—it's a key metric for stock prices on the Tokyo Stock Exchange (TSE). TOPIX is a capitalization-weighted index that covers all firms in the TSE's first section, which groups together the exchange's largest companies. The second section handles the smaller ones.
Key Takeaways
You should know that TOPIX is a Japanese stock market index calculated and published by the TSE. It tracks domestic companies in the exchange’s first section, representing Japan's biggest firms by market capitalization. There's also the Nikkei, a price-weighted index of the top 225 blue-chip companies on the TSE. Remember, you can't buy an index directly, but ETFs like the TOPIX Core 30 ETF let you invest in securities that mirror TOPIX's performance.
Understanding the Tokyo Price Index (TOPIX)
The TSE, Japan's largest stock exchange, calculates and publishes TOPIX. Compared to the Nikkei 225, TOPIX gives a better overall picture of Japanese stock markets because it fairly depicts price changes and includes the TSE's largest companies. The Nikkei, on the other hand, is price-weighted and only covers the top 225 blue chips.
The Sector Indices of TOPIX
TOPIX measures current market capitalization assuming the base date of January 4, 1968, equals 100 points. It's a tool to gauge stock market trends and serves as a benchmark for investors. The sector indices divide TOPIX constituents into 33 categories based on industrial sectors from the Securities Identification Code Committee. These cover areas like construction, textiles and apparels, nonferrous metals, machinery, electric power and gas, land and air transportation, retail trade, banks, securities and commodity futures, real estate, insurance, agriculture and forestry, pharmaceuticals, and iron and steel.
TOPIX also has subindices published by the TSE, including the TOPIX New Index Series, size-based TOPIX subindices, TOPIX sector indices, the Tokyo Stock Exchange Composite Index Series, the Tokyo Stock Exchange Dividend Focus 100 Index, the Tokyo Stock Exchange REIT Property Sector Index Series, and the Tokyo Stock Exchange Mothers Index.
TOPIX as Free Float Index
In three phases starting in 2005 and ending in summer 2006, TOPIX shifted from weighting by total outstanding shares to free float, which only counts shares available for trade. This change, while technical, significantly affected company weights because many Japanese firms hold shares in business partners for alliances, and those are now excluded.
Fast Fact
This Japanese practice of close business ties and equity stakes is called keiretsu, meaning 'headless combine'.
Special Considerations
One notable TOPIX index is the TOPIX Core 30, which tracks 30 highly liquid, large-cap stocks from TOPIX, starting April 1, 1998, with a base of 1,000. It includes big names like Honda Motor, Canon, Mitsubishi Corp., Sony, and Toyota Motor. You can't buy the index itself, but ETFs like the TOPIX Core 30 ETF from Nomura Asset Management replicate its composition for similar performance.
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