Yanai Wins as Nikkei Quirk Sends BOJ Cash to Fast Retailing

By Tom Redmond and Toshiro Hasegawa

As the Bank of Japan’s decision to triple purchases of exchange-traded funds brought smiles to investors in Tokyo, nobody was happier than clothing billionaire Tadashi Yanai.
A quirk in the design of the Nikkei 225 Stock Average (NKY) means the founder and biggest shareholder of Fast Retailing Co. (9983) will gain the most from the central bank’s 3 trillion yen ($25.8 billion) in annual ETF purchases. Funds tracking the stock gauge will see 1.8 trillion yen in buying, according to Tokai Tokyo Securities Co. About 180 billion yen will flow into the maker of the Uniqlo brand, as it accounts for 10 percent of the measure.
The Nikkei 225 weights companies by the price of one of their shares, an arbitrary method scorned by today’s equity-measure designers. Fast Retailing’s proportion of the
index is more than 20 times larger than its share of the Topix, which uses market value. Asia’s largest retailer has jumped 18 percent through yesterday since the BOJ surprise, against the Topix’s 8.7 percent advance. Yanai, already Japan’s wealthiest man, is $2 billion richer.
“You might as well just call the Nikkei 225 the Uniqlo index,” Seiichi Suzuki, a market analyst at Tokai Tokyo Securities, said by phone on Nov. 12. “The big winner from all this is Yanai.”

Photographer: Yuriko Nakao/Bloomberg

Billionaire Tadashi Yanai, chairman, president and chief executive officer of Fast Retailing Co.

Japan’s central bank surprised the market with additional easing on Oct. 31, unveiling plans to expand the monetary base by 80 trillion yen a year and make annual purchases of 3 trillion yen of ETFs and 90 billion yen of real estate investment trusts.

Nikkei Outperforms

The Nikkei 225 has been outpacing the broader Topix by the most this year after the BOJ announcement. The Nikkei 225’s close was 12.5 times that of the Topix yesterday, the highest level for the measure known as the NT Ratio since December. The Nikkei 225 rose 0.6 percent today in Tokyo, while the Topix gained 0.8 percent and shares of Fast Retailing sank 0.2 percent.
The central bank will put more than half its ETF investments into funds that track the Nikkei 225, Tokai Tokyo’s Suzuki said. Foreign buying of Japanese stocks, which surged over the past two weeks to the most in almost a year, is also benefiting the Nikkei 225, as overseas investors opt for the larger companies in the measure.
Through yesterday, the Nikkei 225 has gained 11 percent since the BOJ decision. Fast Retailing accounts for 10 percent of the measure, 0.4 percent of the Topix and 0.6 percent of the JPX-Nikkei Index 400 (JPNK400), data compiled by Bloomberg show.

Yanai’s Fortune

Yanai, the company’s chairman, owns 22 percent of its stock, according to data compiled by Bloomberg. His net worth climbed to $19.2 billion yesterday, making him the 35th-richest person in the world, according to the Bloomberg Billionaire’s Index. That’s up from $17.1 billion on Oct. 28.
“Given its weighting in the Nikkei 225, we’ll probably see more buying of Fast Retailing,” said Mitsuo Shimizu, a deputy general manager at Japan Asia Securities Co. “It’s a company that can no longer be explained by its own fundamentals.”