Sharp to return to Japan's blue chip index, replacing Docomo

[TOKYO] Sharp will return to Japan's Nikkei 225 Stock Average, replacing NTT Docomo 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 said in an announcement. The unscheduled change comes as a result of Docomo's impending delisting, with parent Nippon Telegraph & Telephone succeeding in its US$40 billion tender offer for the mobile unit.

The addition caps a turnaround led by Foxconn Technology Group, which took over Sharp in 2016 after years of losses in a US$3.5 billion deal. Having expressed doubts about its ability to stay in business amid severe financing issues, under Foxconn's management it has been overhauled 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 to replace Docomo, some were taken aback. Shares, which at once point had almost quadrupled, closed regular trading on the Tokyo Stock Exchange just 9 per cent higher than when they were removed from the index in 2016.

"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. "There were other major electronic maker names with large market caps that have been left alone."

Those names included Rohm, Anritsu posited by SMBC Nikko Securities, while Daiwa had raised Murata Manufacturing, Aisin Seiki and Shimadzu as potential replacements.

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Sharp shares on the Japannext trading platform surged as much as 21 per cent following the announcement.

Docomo's delisting was effectively confirmed on Tuesday, with NTT having succeeded in taking its stake to more than 90 per cent, 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. When a component is delisted or removed, it's usually replaced with a highly liquid name 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 surged after being added to the index earlier in October, a surprise change for convenience store chain FamilyMart after it was bought out by Itochu. Japan Exchange Group 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.

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