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Exchanges in EXANTE terminal: TSE
23
Sep
Exchanges in EXANTE terminal: TSE

 

Today we are continuing our series of articles on the world's major stock exchanges. This time, we are going to talk about the Tokyo Stock Exchange (TSE).

The TSE's Place in the Global Economy

The Tokyo Stock Exchange is the world's fourth stock exchange by market cap ($4.4T) and the number of listed companies (2400). It is Asia's largest stock exchange, and in the 1980s it was actually the world's first, having overtaken the New York and London Stock Exchanges. The companies at the TSE are no less well-known to the populace than those at the NYSE. They include Toyota, Mitsubishi, Canon, Sony, Panasonic, Japan Airlines, Nikon, and Ricoh.

The TSE's building. Even though the district where it is located is more open than where the NYSE is, it is still not easy to take a good photo of it, because it looks too modest in most pictures. However, this close-up photo with some Japanese businessmen walking by turned out to be quite good.

History

While the TSE is not one of the world's oldest stock exchanges, it is quite old by Asian standards, as it opened in 1878. In 19th century Japan, this was an event with a profound impact. Japan copied many Western standards during the Meiji period, and the TSE was not the only stock exchange that opened in Japan at the time. In the late 19th to early 20th century, 11 stock exchanges were opened in the country. However, they all merged under the TSE during World War II.

Trading at the TSE was suspended after World War II, but in the 1950s it resumed once more. That was the time when the united TSE first saw true success. In the 1960s through the 1980s Japan embodied the “Asian economic miracle”, and the TSE accomplished the impossible, as it took the first place in the world by market capitalization, overtaking the NYSE and the LSE. Just like 60% of the world companies' total market cap is being traded on the NYSE, in the late 1980s the same percentage of the world's total market cap was traded on the TSE.

However, the Japanese stock market turned out to be a bubble. The world overestimated the Japanese companies, and after 1990 the investors started to lose their interest in them. The “Japanese asset price bubble” started to deflate. Unlike many other bubbles in the history of the world economy that simply burst, putting some of the companies out of business and making others richer, this bubble severely impacted the country's whole economy. Its deflation turned out to be slow and painful. The Japanese call the 1990s the “lost decade”.

In the 1990s the TSE once again lost its lead to the NYSE, and in the 2010 it was also overtaken by the NASDAQ and the LSE. Today the TSE holds only the fourth place by market cap, though it still holds the first place outside the Western world. Informally, Japanese economy continues to be held in high regard. Even people with little knowledge of economics can name no less than five major Japanese companies that (usually car and electronics companies), which cannot be said of British or French companies.

The Nikkei 225 Index

The Nikkei 225 stock market index is one of the most well-known in the world. Unlike most modern indices that are proportional to the total market cap of a given group of companies (such as the S&P 500 index that is proportional to the total market cap of the United States' 500 largest companies), the Nikkei 225 index is proportional to the total price of the 225 most popular shares on the TSE. The S&P 500, the NASDAQ Composite, the FTSE 100 and most of the other famous indices are capitalization-weighted, while the Nikkei 225 (and the outmoded Dow Jones index) are price-weighted. Price weighting leads to the index being impacted more significantly by companies with more expensive shares, rather than those that are simply larger (and because of that, one cannot see the actual size of the companies from the index). However, such indices still provide meaningful information about the companies' activity in the country.

Graph of the Nikkei 225 index

Just like the dot-com bubble plays the leading role in the NASDAQ index graphs, so does the Japanese asset price bubble play a leading role in the Nikkei 225 graph. Before 1990, Japanese economy and its stock market was experiencing a boom, but then it gave way to a recession. A negative trend can be seen on the graph right until 2012 (when the index was at the level of 1985), and only now there are hints of the bubble's effects having been overcome.

One can buy shares of an ETF of the same name (Nikkei 225) on the TSE with the ticker symbol 1321 that tracks the index's value. Buying the Nikkei 225 ETF shares essentially means investing in the TSE's 225 most popular shares.

What Investors Should Keep in Mind

Asian stock markets are not as popular among online brokers as the European or American ones. Nonetheless, many of them give access to the TSE as Asia's leading stock exchange. Obviously, the broker needs to give direct market access, or DMA, to it, rather than simply making a contract for difference, or a CFD. In particular, EXANTE gives DMA to the TSE.

All the companies listed on the TSE can be seen at the Stock Screener service at finance.google.com (choose “Japan” in the first box, and “Tokyo Stock Exchange” in the second). Let us see which companies are the first according to different criteria in this year.

The Toyota Motor automobile giant is the undisputed leader by market cap (ticker symbol 7203, market cap $201B). The highest 52-week price increase is shown by the Hirata device and robot engineering company (ticker symbol 6258, 52-week price increase 588%, market cap $660M). The highest earnings increase over the last five years is shown by the Tecnos Japan IT support company (ticker symbol 3666, 5-year earnings increase 382%, market cap $208M). The most expensive shares belong to the real estate investor Hoshino Resort REIT Toshi Hojin (ticker symbol 3287, share price $12000, market cap $1.0B).

The TSE's working hours are 3:00 to 9:00 Moscow time (9:00 to 15:00 Tokyo time). The commissions that online brokers take with the TSE are usually a percentage of the amount being traded, and are typically higher than those with European exchanges. Usually they are around 0.1% or higher. The minimum commission is usually around $1, which is closer to the minimum commission used with American stock exchanges. EXANTE does not have a minimum commission, and it takes 0.3% of the amount being traded.

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