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SCMP Reporter

THE Nihon Keizai newspaper has unveiled a new index, the Nikkei 300 Stock Index, to replace the Nikkei 225 average, the most closely watched stock index in Japan.

     The new index, which will begin tracking 300 leading stocks when markets open again after next Monday's holiday, was the centre of an ambitious plan to scrap Nikkei 225 futures and replace them with a new benchmark futures contract, traders said.

     The Osaka Securities Exchange, where Nikkei 225 futures trade, has yet to accept the Nikkei 300 as an alternative index. An exchange spokesman said that if the answer was yes, the new futures would begin trading early next year.

     The new index is part of an elaborate scheme to curb the market volatility that many Japanese have blamed on Nikkei 225 futures.

   Officials at the Finance Ministry, stock exchanges and securities houses have been working on the project for the past year.

     The new index won praise from investors and traders this week as details were leaked to the press. Many say it will be a more accurate gauge of Japan's economy than the ageing, clumsy 225 average.

     Critics say the Nikkei 225 is too easily manipulated by traders, and that its component stocks no longer accurately reflect the Japanese economy.

     ''I think the new index will be a better index than the Nikkei 225,'' said Thomas McCusker, vice-president of derivative sales at CS First Boston. ''We could see more global institutional money managers in here trading the new index.''      Still, questions persist about how successful futures traded on the new index will be. Arbitrageurs, who trade on mispricings between markets, like the old Nikkei because its inaccuracy produces ample trading opportunities and is one of the few ways to make a profit in Japan's flagging stock market.

     Die-hard fans of the old Nikkei futures may simply move their orders to the SIMEX exchange in Singapore. SIMEX's right to use the Nikkei 225 average to trade futures will not expire until 1995. And over-the-counter trades, which are made by telephone and not executed on any exchange, may become even more popular.

     All this means it could take years for the volume of the new futures to rival that of the Nikkei 225 futures, which is second only to the Standard & Poor's 500 futures in activity.

     ''Eventually the Nikkei 225 futures would be phased out if this thing is successful,'' said Nicholas Waltner, a derivatives salesman at Salomon Brothers Asia. ''And it will probably be successful at first. But the question is, later on, will people really want to give up trading on the Nikkei 225. The average man still looks at the Nikkei.''      One of the Nikkei 225's biggest problems is that it is slow to keep up with the times. It does not include such popular stocks as Nintendo, the second most profitable company in Japan, or Mitsubishi Motors Corp, regarded as the strongest among Japanese carmakers. But the Nikkei 300 will.

   Other conspicuous omissions from the old Nikkei are second largest airline All Nippon Airways, number two brokerage Daiwa Securities Co, security company Secom, video game leader Sega Enterprises, consumer credit firms Hitachi Credit and Orix Corp, and rising supermarkets Ito Yokado and Jusco. The new index will include all these companies.

     It would rely less on ageing industries such as textiles, mining, fisheries and film studios, said Yuichi Matsushita, a strategist at Nikko Securities.

     The Nikkei 225 is burdened by these dinosaurs, which once empowered Japan's economy but have found demand for their goods declining as Japan's economy matures.

     ''If [those industries] don't diversify, they will die,'' Mr Matsushita said.

     Another plus is that the new index will be capitalisation weighted. A stock's market capitalisation equals the number of outstanding shares times the price, so larger companies' shares have a bigger effect on moving the entire index.

   The Nikkei 225 is calculated simply by dividing the sum of the prices of its 225 components by a divisor.

     Critics of the old Nikkei say its calculation is too simple to be accurate.

     A small stock like Tokyo Dome, with 161 million shares, has as much of an effect on the Nikkei as Mitsubishi Bank, with 2.87 billion shares. By focusing on Tokyo Dome's shares, traders can manipulate the Nikkei more easily.

     No more. The new index will have 75 more stocks. Buying more stocks with more shares will require traders to spend more money to trade the new index against futures, even if the futures themselves are cheaper.

     The Nikkei 300 futures will be cheaper to make the new futures more appealing to smaller investors. The trading size will be announced in today's Nihon Keizai newspaper.



Index replaces familiar 225 average