One Uniqlo share for 100,000 yen sparks concern over Nikkei dominance

Tokyo

SHAREHOLDERS are cheering the record share price of Fast Retailing, the operator of casual fashion giant Uniqlo that has just become the most valuable apparel retailer in the world.

But some other market observers are sounding notes of caution over the stock's ever-increasing influence on Japan's Nikkei 225 Stock Average, as technical changes caused by its recent highs raise its already-outsized impact on the blue-chip gauge.

A five-fold increase in Fast Retailing's tick size - the minimum amount by which the stock can move up or down - and a surge in its weighting in the index mean the Nikkei's rise is increasingly intertwined with that of the casual clothing firm, even as Japanese stocks look to test record bubble-era highs. The Nikkei broke the 30,000 barrier this week, returning to that level for the first time since 1990.

Fast Retailing has risen about 80 per cent in the past 12 months and the price per share broke the 100,000 yen (S$1,255.40) level on Tuesday, making it the only listed company in Japan to trade at such a value. That triggered a technical change, as under Japan Exchange Group rules the tick size on stocks trading above 100,000 yen jumps to 50 yen.

"Each step gets bigger. Up to 99,999 yen it only moved 10 yen a tick," said investor Taketsugu Agari. "The Nikkei 225 may become ever-more dominated by moves in Fast Retailing."

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In the last six months alone, the apparel maker has contributed more than 1,600 points to the Nikkei 225, single-handedly responsible for nearly a quarter of the index's 31 per cent gain in that time.

The shares briefly touched a record high Friday morning before ending the day 2.4 per cent lower, contributing nearly half of the Nikkei's 0.7 per cent drop.

Junichi Hashimoto, senior quants analyst at Daiwa Securities, says that while the tick size is unlikely to be an issue in the short term, it could be over longer periods. "If the price is consistently high, when it falls the impact will be greater, and the volatility could increase," he said.

That is further compounded by Fast Retailing's outsized weighting on the index. The Nikkei 225 is a price-weighted gauge, meaning that the arbitrary price of an individual share determines how much of the index a company makes up. At 100,000 yen a share, Fast Retailing is a giant.

That weighting stood on Thursday at a record 12.8 per cent, higher than the largest weighting on any other developed market benchmark.

While Fast Retailing has been the dominant force on the Nikkei 225 for a decade, its proportion on the index has surged along with its share price, forcing passive investors to buy more of the stock as the Nikkei gains. The biggest stock on the Dow Jones Industrial Average, UnitedHealth Group, makes up 6.8 per cent of that price-weighted measure. On Japan's broader Topix index, Fast Retailing is the 41st largest weighting, making up just 0.5 per cent. BLOOMBERG