Nintendo Co. is widely expected to be added to the Nikkei 225 Stock Average in the next review of the blue chip gauge, ending years of waiting for the Japanese maker of hit games, from Mario to Pokemon.
The stock has been excluded so far due to concerns over the potential impact on the average of Nintendo’s large share price, which is currently over ¥52,000 ($474). Changes announced by Nikkei Inc. in July that allow for the adjustment of high-priced stocks added to the price-weighted measure are seen as paving the way for Nintendo’s inclusion.
Analysts at some of Japan’s largest brokerages, including SMBC Nikko Securities Inc., Daiwa Securities Group Inc. and Mizuho Securities Co., now count the game company as a top candidate to be included in the gauge’s autumn reshuffle, the results of which are expected in September.
Speculation over Nikkei 225 addition has failed to provide any recent lift for the shares, however. The stock has fallen 24% after flirting with a record high in February, as investors fret over the end to the stay-at-home pandemic boost and the longevity of consumer demand for its aging Switch console franchise.
Nikkei Inc.’s revisions were seen as aimed at helping modernize the blue-chip gauge. Similar to the Dow Jones Industrial Average, the Nikkei 225 has long been criticized because its price-weighted nature makes it more prone to wild swings in stocks with higher prices.
The gauge will now use "price adjustment factors” that will ensure the weightings of new constituents don’t exceed 1%, with no impact on existing constituents. The Nikkei 225’s largest components currently are Fast Retailing Co., Tokyo Electron Ltd. and SoftBank Group Corp., which each account for around 5% to 10%.
The changes by the index creator will make it easier for Nintendo to be added, according to analysts including Keiichi Ito at SMBC Nikko. The game maker’s high liquidity level and the fact that the consumer sector is "severely under-represented” in the Nikkei 225 are other reasons to expect an end to its yearslong wait, they wrote in a July note.
Not that previous index review results have always been in line with expectations. Nikkei surprised investors in November by announcing Sharp Corp.’s return to the blue-chip gauge four years after it was removed. SoftBank’s mobile unit SoftBank Corp. was another unexpected addition last year.
"This is the first regular reshuffle following the rule revision, so the accuracy of forecasts is likely to be low,” Mizuho quants analyst Hayato Nagayoshi wrote in a note.
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