The Nikkei 225 is a stock market index for the Tokyo Stock Exchange (TSE), representing the performance of 225 top-rated companies listed in Japan. It is one of the most widely recognised indices in Asia and serves as a barometer for the overall health and trends of the Japanese stock market. Established in 1950, the Nikkei 225 is a price-weighted index, similar to the Dow Jones Industrial Average in the United States, meaning that companies with higher stock prices have more influence on the index's performance than those with lower stock prices, regardless of the actual size or market capitalisation of the company.
The Nikkei 225 includes companies from various sectors, providing a comprehensive overview of Japanese industry, including technology, manufacturing and services. For international investors, the Nikkei 225 is often used as a gauge for assessing investment opportunities in Japan, reflecting both the potential risks and rewards of investing in one of the world's largest and most sophisticated economies.
Investing in the Nikkei 225, or financial products that track its performance, such as exchange-traded funds (ETFs) and futures contracts, offers investors a way to gain exposure to the Japanese market. However, due to its price-weighting mechanism, the index might not fully reflect the market capitalisation of the Japanese market, which can lead to discrepancies in performance compared to other indices that use a market cap-weighted approach. Additionally, as with any investment in foreign markets, investors should consider currency risk, geopolitical factors and differences in regulatory and economic environments.
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