The Nikkei 225 is set to adjust the weight of Fast Retailing, the owner of the apparel brand Uniqlo, in its index calculation. Effective April 1, the price-adjustment factor for Fast Retailing will be reduced from 2.7 to 2.4. This adjustment comes as part of the capping rule introduced by Nikkei in 2022 to prevent certain stocks from dominating the index with excessively high ratios.
As of January 31, the weight of Fast Retailing reached 11.4%, surpassing the preset cap of 10%. This breach triggered the application of the capping ratio, in accordance with the rule that mandates a reduction when a constituent exceeds 10% on the final trading day in July or January. Hence, the new capping ratio will be applied to Fast Retailing's share price starting in April.
Nikkei conducts periodic reviews in October and April to ensure that no single stock skews the index disproportionately. The index provider calculates the Nikkei 225 using share prices along with a price-adjustment factor for all component issues. By implementing such measures, Nikkei aims to maintain a balanced representation of its constituents, safeguarding the integrity of the index.
The introduction of the capping rule by Nikkei in 2022 was a strategic move to enhance market stability and prevent any single stock from exerting undue influence over the index's performance. With Fast Retailing's weight exceeding the 10% threshold, it became imperative to apply the capping ratio, thus ensuring a more equitable distribution among the components of the Nikkei 225.
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