Nikkei reshuffle expected to aid market in long run

The replacement next week of 30 component stocks of the key 225-issue Nikkei average will boost the Tokyo stock market in the long run, although it is expected to exert some downward pressure today, a private economic research institute said Thursday.

If the reshuffling of the Nikkei average’s components had been implemented at the start of this year, the index would now be at around 21,500, some 2,500 points higher than its actual level, the Daiwa Institute of Research said.

Nihon Keizai Shimbun Inc., which operates the Nikkei average on the Tokyo Stock Exchange, will replace 30 of the issues in the benchmark index on Monday so as to have it reflect market trends more accurately.

Ito-Yokado Co. and Kyocera Corp. are among the issues to be added, while those to be deleted include Nichiro Corp. and Noritake Co.

The move is currently causing downward pressure on the market as investors are selling shares in the 30 companies to be removed from the index.

Daiwa estimates that 10.5 million shares of each relegated issue will be sold through today, while 6.1 million shares of each promoted issue will be purchased.

As the issues to be added cost more than those to be removed, investors are expected to sell an average of 4.4 million shares in each of the other 195 issues in the Nikkei average, Daiwa said.

Accordingly, the reshuffling of the Nikkei average will result in net sales of 8.8 million shares per component issue. Daiwa made the estimate mainly by analyzing the number of shares held by Nikkei-linked trusts.

The Nikkei finished at 18,959.32 on Thursday, down 127.3 points, or 0.67 percent, due largely to selling linked to the replacement of component issues. Brokers said sales of shares to raise funds for buying the 30 issues to be added to the index will continue through Friday.