Sharp Surges With Stock Set to Return to Japan’s Blue Chip Index

Sharp Corp. will return to Japan’s Nikkei 225 Stock Average, replacing NTT Docomo Inc. and marking a comeback on Japan’s premier blue-chip index just four years after it was removed.

The electronics maker will join the gauge on Dec. 2, Nikkei Inc. said in a statement. The unscheduled change comes as a result of Docomo’s impending delisting after parent Nippon Telegraph & Telephone Corp. succeeded in its $40 billion tender offer for the mobile unit.

Sharp shares surged as much as 8.5% in early trading in Tokyo on Thursday, the most since August 6. The addition caps a turnaround led by Foxconn Technology Group, which took over Sharp in 2016 in a $3.5 billion deal following years of losses. Having expressed doubts about its ability to stay in business amid severe financing issues, it has been overhauled under Foxconn’s management and turned back to posting largely consistent profits.

While the appointment is not completely out of the blue, with Sharp having been cited by analysts as a possible candidate, some were taken aback. Sharp’s market value of about $6 billion would place it in the bottom half of companies on Nikkei, with the stock closing Wednesday just 9% higher than when it was removed from the measure in 2016.

Sharp Surges With Stock Set to Return to Japan’s Blue Chip Index

“It’s a bit of a surprise, given that its profits had worsened for a bit and it wasn’t the leading candidate for the replacement,” said Tomoichiro Kubota, a senior market analyst at Matsui Securities Co. “There were other major electronic maker names with large market caps that have been left alone.”

Those names included Rohm Co., Anritsu Corp. posited by SMBC Nikko Securities, while Daiwa had raised Murata Manufacturing Co., Aisin Seiki Co. and Shimadzu Corp. as potential replacements. Shares of all of these candidates fell by at least 2%.

Surprise Inclusions

The addition itself wasn’t surprising, but the deemed par value of 50 yen was, analyst Travis Lundy wrote in a note on Smartkarma. That could help lift Sharp’s shares more than other companies added to the index.

“I would expect this to trade strong, then trade stronger,” he wrote. “ I would not be surprised to see it move 50%.”

Docomo’s delisting was effectively confirmed on Tuesday, with NTT having succeeded in taking its stake to more than 90%, allowing it to squeeze out the remaining shareholders.

With funds tracking the index needing to buy and sell to reflect the changes, and speculators seeking to profit in advance, Nikkei 225 changes are reliable events for volatility. That’s especially been the case given the increasing purchases of exchange-traded funds tracking the Nikkei purchased by the Bank of Japan in order to support the market. Components are usually replaced with highly liquid names from the same sector -- but there have been several surprise inclusions in 2020, in what’s been an unexpectedly active year for the index, largely thanks to the unwinding of so-called parent-child listings of publicly traded units.

Game maker Nexon Co. surged after being added to the gauge in October, a surprise replacement for convenience store chain FamilyMart Co. after it was bought out by Itochu Corp. Japan Exchange Group Inc. replaced Sony Financial Holdings earlier in the year, after Sony Corp. took full control of the unit, while SoftBank Group Corp.’s mobile unit SoftBank Corp. was another eye-catching addition when it joined in September as part of the index’s annual review.

Iida Group Holdings will replace Docomo in the Nikkei 300, while UT Group will take its place in the Nikkei 500.

©2020 Bloomberg L.P.

BQ Install

Bloomberg Quint

Add BloombergQuint App to Home screen.