- Market Data Approach
JPX Prime 150 Index Quietly Outperforming Nikkei 225 and TOPIX
The JPX Prime 150 Index, launched by Japan Exchange Group (JPX, 8697) in July 2023, has been quietly outperforming the Nikkei 225 and the Tokyo Stock Price Index (TOPIX). Despite its lower profile, the index, composed of "value-creating" companies with earning power, has the potential to enhance its reputation in terms of growth and quality over the medium to long term.
The JPX Prime 150 Index constituents are selected by JPX Market Innovation & Research (JPXI) from the top 500 Prime Market listed stocks by market capitalization based on two criteria: (1) equity spread (ES)--that is, return on equity (ROE) minus cost of capital; and (2) high price-to-book ratio (P/B ratio). Seventy-five companies are selected for each criterion, making a total of 150. Compared against the TOPIX, the ROE and P/B ratios of the constituent stocks are higher, putting the index on a par with European and U.S. indices.
*Status of Constituent Stocks
Source: JPXI
https://www.jpx.co.jp/english/news/6030/dh3otn000000cs6e-att/e_prime150data.pdf
The index got off to a sluggish start. However, since March 2024, it has been outperforming the Nikkei 225, Japan's leading stock price index, and the TOPIX, which is a benchmark for the overall market. And it saw a faster rebound than the other indices after the major market corrections in August.
*Relative comparison, with the end of March set at 100
The JPX Prime 150 Index tends to underperform against the TOPIX when value stocks are highly appreciated, such as during a global interest rate hike. But because it comprises large companies with a focus on growth potential, it tends to outperform the TOPIX when growth stocks are dominant. There are increased expectations of interest rate cuts in the U.S. and Europe, so "it is likely we will see a movement of funds into growth stocks, based on past selective buying patterns," according to one strategist.
Toyota, Mitsubishi Added in First Replacement
JPXI conducted the first periodic replacement of the JPX Prime 150 Index constituents on August 30. Nineteen stocks, including Mitsui O.S.K. Lines (9104) and Nippon Yusen (9101), were delisted from the index, while 20 stocks, including Toyota Motor (7203) and Mitsubishi Corporation (8058), were added.
*Results of the Periodic Replacement, Changes in Constituents
Source: JPXI
https://www.jpx.co.jp/english/news/6030/dh3otn000000cs6e-att/e_prime150.pdf
The JPX Prime 150 Index's market coverage was 50% before the periodic replacement but rose to 58% with the inclusion of large-cap stocks. JPXI expects the index will continue to outperform the TOPIX in terms of growth, such as profit growth. It also expects the index will retain characteristics that are distinct from the TOPIX and perform differently from it.
One of the challenges for the JPX Prime 150 Index is its low profile in the market. Although exchange-traded funds (ETFs) and publicly offered investment trusts have been established since the beginning of 2024, total net asset value remains at around JPY24 bn. In March, the JPX Prime 150 Index Futures was launched to provide a means of hedging, but even in the lead contract month, there are many days when trading does not take place.
On September 3, QUICK held a seminar reviewing the Tokyo Stock Exchange (TSE)'s request for "Management Conscious of Cost of Capital and Stock Price" and discussing future measures. The JPX Prime 150 Index was also discussed. A total of about 450 participants attended the seminar both at the venue and online.
During the Q&A session on the JPX Prime 150 Index, participants asked about how the index is represented in the media and what is needed to increase the number of products linked to it. Motohiro Hashimoto, Head of JPXI's Index Business, explained: "It is important to promote awareness of the index and enhance its profile." As the index is different in nature from the TOPIX, which represents the market as a whole, Hashimoto said "The entire JPX Group will work together to promote the JPX Prime 150 Index."
A strategist at a Japanese securities firm pointed out: "Even an index with an excellent concept needs to be exposed to a large number of people on a daily basis through TV, newspapers, and so on." It is hoped that the index's improved performance, along with careful explanation provided to the market by JPX Group, will create a virtuous cycle toward building increased recognition.
(Reported on September 5)
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