Japan Markets View[Vol. 2] Calculation Rules for Next-Generation TOPIX and Forecast for Constituent

Oct 01, 2024

TVol. 1: Calculation Rules for Next-Generation TOPIX and Forecast for Constituent Replacement

Satoshi Anma, QUICK Corp.
Last updated on October 29, 2024

Overview

The first report showed the rules for calculating the next-generation TOPIX and the transition schedule. This second report features a forecast based on the most recent data for replacing constituent stocks when the current TOPIX is shifted to the next-generation TOPIX.

Forecasts for Constituent Replacement

The first periodic replacement based on the next-generation TOPIX calculation rules will be implemented in stages from October 2026, with the last business day of August 2026 as the base date. Here, we forecasted the periodic replacement based on the calculation rules presented in this report, with July 31, 2024, as the base date. Note that the TOPIX, as of July 31, 2024, included phased weighting reduction constituent stocks with a market capitalization of less than JPY10 bn in tradable shares. However, all such stocks will be excluded from the TOPIX by the end of January 2025 and will be the TOPIX non-constituent stocks at the time of the first periodic replacement scheduled in October 2026. Therefore, we forecasted the constituent replacement by excluding phased weighting reduction constituent stocks. The calculation procedure is as follows.

Designate stocks listed on the Prime, Standard, and Growth Markets as of the base date (July 31, 2024) as eligible stocks.
Form a population by excluding securities to be delisted, securities on special alert, and securities newly listed in the month containing the base date, from the eligible stocks.
Exclude phased weighting reduction constituents from the TOPIX constituents.
Extract the TOPIX non-constituent stocks (including phased weighting reduction constituents excluded in (iii)) with an annual traded value ratio of 0.2 or more from the population formed in (ii).
Extract the TOPIX constituent stocks (not including phased weighting reduction constituent excluded in (iii)) with an annual traded value ratio of 0.14 or more from the population formed in (ii).
Combine the groups of stocks extracted in (iv) and (v) together, sort them in descending order of free-float adjusted market capitalization, and calculate the percentage of cumulative free-float adjusted market capitalization.
From among the TOPIX non-constituent stocks with an annual traded value ratio of 0.2 or more extracted in (iv), designate those stocks with the percentage of cumulative free-float adjusted market capitalization within the top 96% as new constituents.
From among the TOPIX constituent stocks with an annual traded value ratio of 0.14 or more extracted in (iv), designate those stocks with the percentage of cumulative free-float adjusted market capitalization within the top 97% as the TOPIX constituents again.

The chart below summarizes the procedures and results of the stock replacement forecast. Figures in parentheses indicate the number of stocks. The population is 3824 stocks, which is obtained by excluding a total of 9 stocks (securities to be delisted, securities on special alert, and newly listed securities) from the 3833 stocks covered in the forecast. The number of TOPIX constituents in the population as of the base date is 2135, but it becomes 1702 when 433 phased weighting reduction constituents are excluded. The TOPIX constituents in the population that meet the criterion for selecting existing constituents were 1033 stocks (and the number of stocks to be excluded from the TOPIX was 669). Meanwhile, the TOPIX non-constituents in the population that meet the criterion for selecting new constituents were 32 stocks. Therefore, the number of TOPIX constituents after the periodic replacement was 1,065.

[Procedures and Results of the Stock Replacement Forecast]