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Who Wins as the Nikkei Becomes the World's Best-Performing Major Index?

Surprisingly, Uniqlo commands more than 10% of the weighted Nikkei. And boss Tadashi Yanai lists his company in Tokyo but 80% of its clothes are made in China.



A board inTokyo shows the closing price of the Nikkei 225, which hit a new high on February 22, 2024. (© Sankei by Yoshinori Saito)

Tadashi Yanai, founder of the clothing chain Uniqlo, was the big winner when the Nikkei 225 index soared to a record high on February 22. He has his family have an estimated net worth of $40 billion USD.

Their wealth increases with each rise in the share price of Uniqlo's parent company, Fast Retailing. The Yamaguchi-based billionaire owns 19 percent of the shares in the company he founded.

Many investors assume that by putting money into the Nikkei they are buying stakes in 225 of Japan's big companies. This is technically true. However, the index is skewed towards certain businesses, including Fast Retailing. And that works to Mr Yanai's advantage.

His company commands by far the largest weighting of more than 10% of the Nikkei index. That is despite being half the size of Toyota in terms of market capitalization, according to the Financial Times.

Tadashi Yanai, chairman, president and CEO of Fast Retailing, the owner of Uniqlo.

Cold Comfort

A cold winter in Japan was good news for Uniqlo. It reported a sharp increase in sales of thermal clothes sold under the Heattech brand. Mr Yanai boasts that Uniqo incorporates "the values of Japan's excellent manufacturing industry." Nevertheless, the key to his success is a very deep relationship with China

Uniqlo produces approximately 500 million articles of clothing every year. And about 80% of the goods are made in China. It also has 1,039 shops in Greater China. There are 76 in Taiwan.

Sales in that region were "extremely buoyant" in the most recent quarter, according to information shared with investors. Uniqlo is also doing well globally. It claims profits "rose considerably" in Southeast Asia, India, Australia, North America, and Europe.

Cashmere sweaters are particularly popular. They are made from the hair of goats which are farmed in Inner Mongolia. The cashmere trade depends on a close collaboration between Uniqlo and the Chinese companies that dominate the business.

Nvidia sign outside its Santa Clara, California offices. (©Will Buckner via Wikimedia Commons)

American Inspiration

Investors in Japan have also been inspired by an impressive technology firm from California.

Nvidia is the hottest stock in the United States. Its market value has gone from just above $300 billion to hit a high of $2 trillion on February 23.

Nvidia is listed on the Nasdaq in New York, not Tokyo. However, its popularity among investors is based upon the assumption that it will see booming profits through its links to the burgeoning artificial intelligence (AI) sector. This bodes well for Japanese firms operating in a similar field.

Many investors believe that Japan - known since the 1960s for its advanced technology - has created an environment in which semiconductor and AI companies will thrive.  

Nvidia's bumper earnings in mid-February catalyzed rallies in several markets. The S&P 500 in America, the Stoxx Europe 600, as well as the Nikkei 225, all hit record highs. 

CNN points out that a semiconductor manufacturer called Screen Holdings was the top performer among the Nikkei constituents. It climbed just over ten percent in a single day. Advantest, which supplies testing equipment for the chip industry, surged 7.5%. Tokyo Electron, which sells electronics and semiconductor production equipment, jumped 6%. 

The Nikkei Stock Average hit an all-time high even at closing, 3:08 PM on February 22 in Osaka's Chuo sector. (© Sankei by Miyako Nagumo)

Weak Yen

When the Nikkei reached its record on Thursday, some traders greeted the rally with standing ovations, whoops, and cheers. 

Yet behind the stock market rally lies a concern about the value of the yen. Japan's currency has depreciated against the US dollar, mainly because of a stark divergence between the high interest rates in the US and Japan's "ultra easy" monetary policy. 

This has a knock-on effect on Japan's economy and is partly to blame for sending the country into a technical recession. A surprise contraction means that Japan's economy is now the fourth largest in the world, falling behind Germany.

"It's a serious challenge and dilemma," Sayuri Shirai, an economics professor at Keio University in Tokyo, told CNBC.


"However, I think BOJ is likely to make some policy changes - including the removal of negative interest rates this spring - because I think they worry about side effects," she said.

At the end of last week, the dollar stood at just below 150 yen. However, many investors pointed out that this makes the shares of Japanese companies look attractive in comparison to firms listed on stock exchanges in the US. 

The Shanghai Stock Exchange building in Shanghai, China. (© Sankei by Shohei Mitsuka)

Contrast with China

The rise in the Japanese market since 2023 has been partly fuelled by a shift of funds away from China. In essence, Tokyo has thrived while the main share indices in Shanghai and Shenzhen have been in the doldrums.

Foreign investors have grown particularly wary of China because of its slowing economic growth and a crisis in the Chinese real estate market. The authorities in Beijing have tried several actions to stabilize the situation. A so-called national team is primed to pile into the market on bad days to buy up shares, to stop them from falling in value. The authorities can even order institutional investors not to sell domestic stocks. 

Nevertheless, Chinese companies continue to disrupt the global economy. The electric vehicle firm BYD is now selling more cars than Tesla and is aiming to challenge Toyota for market share. It's a reminder that China can be a serious rival to Japan, as well as a collaborator and a valuable market for Japanese exports. 


Author: Duncan Bartlett, Diplomatic Correspondent

Mr Bartlett is the Diplomatic Correspondent for JAPAN Forward and a Research Associate at the SOAS China Institute. Read his articles and essays.

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