Tokyo's stock market experiences a decline, ending the trading day 1.22% lower
TheNikkei 225 and Topix, two essential indices mirroring the Japanese equity landscape, concluded the trading session on a different note. Specifically, the Topix inched down by 0.37% to close at 2,801.57 points.
Unlike the Nikkei 225, which consists of 225 hand-picked stocks from the Tokyo Stock Exchange's Prime Market, the Topix encompasses a more extensive range of companies, totaling thousands of listings. While the Nikkei 225 primarily focuses on blue-chip, larger firms, the Topix offers a broader representation of the market.
The Nikkei 225 employs a price-weighted index, where each stock's influence on the index is proportional to its share price. In contrast, the Topix is a market capitalization-weighted index (free-float adjusted), where a company's weight in the index is in accordance with its market capitalization. This means larger companies hold more sway over the Topix, providing a more accurate portrayal of the overall market value.
In essence, the Nikkei 225 tends to be affected more profoundly by changes in the higher-priced stocks, regardless of the companies' relative sizes in terms of market capitalization. The Topix, on the other hand, offers a more balanced market exposure, reflecting the overall market performance with weights corresponding to company size. This distinction is critical for investors deciding between the two indices, as the Nikkei 225 can exhibit higher volatility and be sector-focused, while Topix provides a broader investment perspective.
The Topix's broader representation of the market, composed of thousands of companies across various sectors, makes it an index that effectively mirrors the overall health of the Japanese business landscape. In the realm of finance and industry, this comprehensive approach of the Topix contrasts the Nikkei 225, which primarily focuses on blue-chip, larger firms, and is more sensitive to changes in higher-priced stocks.
