Why is the DAX30 changing to DAX40?

Thirty-three years following its birth, in July 1998, DAX30 has decided to grow up. As an adult child, Germany’s flagship stock index is not leaving the nest – it’s just bringing new additions to the family.

 

Deutsche Börse – the company behind the index – has decided that 10 more companies would join the nation’s premier DAX. The newcomers are largely known businesses expected to strengthen the benchmark and increase its quality. 

 

The DAX shake-up was decided in the wake of the Wirecard scandal. The German payments firm was suspected of fraudulently inflating its balance sheet. As a result, the financial services provider was the first DAX company to file for bankruptcy. 

 

The reform aims to guard the blue-chip index against any Wirecard-similar future crisis.  At the same time, the makeover is to align the German index with its international peers and attract global investors. 

 

As well as the debut of the 10 new companies into the German stock market barometer, a new regulatory framework and further structural reforms will also be implemented.

 

A transitional period will be put in place to give the index’s existing companies time to comply with the new regulations by September 2022.

Why is the DAX30 changing to DAX40

Which are the new kids on the block?

The admission of the new members will be completed by September 20, 2021, and is based on new entry criteria. Newcomers will cover a broader range of sectors, and the index will probably get a growth boost.

 

The DAX30 (DE30) will re-weight to include the following companies from the mid-cap universe (MDAX):  

 

  • Airbus [AIRG.DE] – an aerospace manufacturer
  • Zalando [ZALG.DE] – a multinational ecommerce fashion retail platform
  • Siemens Healthineers [SMMNY] – a medical services, products and solutions provider
  • Symrise [SY1G.DE] – a producer of flavours and fragrances
  • HelloFresh [HFG.DE] – a meal kit provider
  • Sartorius [SRT.F] – a pharmaceutical and laboratory equipment supplier
  • Porsche Automobil [PSHG_P.DE] – an automobile manufacturer specialising in high-performance sports cars
  • Brenntag [BNRGn.DE] – a chemical distribution company
  • Puma [PUM.DE] – a multinational corporation designing and manufacturing athletic and casual footwear, apparel and accessories
  • Qiagen [QIA.DE] – a provider of sample and assay technologies for molecular diagnostics

Interestingly, trading volume will no longer be the main criterion for ranking. Instead, as well as demonstrating market capitalisation credentials, companies entering the DAX40 (DE40) need to have been profitable for the last two years before their admission. Another requirement is positive EBITDA in the two most recent annual financial statements of the companies. Then, companies will need to submit annual financial statements and quarterly reports on time following their access.  

How might the DAX30 reform impact traders?

The new DAX will be a better reflection of corporate Germany, focused mainly on growth, meaning the dynamic of the index may change. More stocks will lead to higher trading volumes and, eventually, more liquidity.

 

More stocks also means higher diversification, although the big companies will still have the highest impact, so any change at the top of the index won’t be significant. On the other hand, big companies with considerable index weighting may influence the DAX’s moves less.

 

The reform will also mean that the MDAX will lose the companies that represent almost half of its market capitalisation. This would potentially lead to reduced liquidity.

 

In a press release, Stephan Flaegel, Chief Product Officer, Indices and Benchmarks at Qontigo, said:

 

We are completing the biggest DAX reform in our history, manifesting the DAX as the German Blue Chip index, which will represent a larger spectrum of the German capital market. The qualitative improvements and alignment with international standards are largely owed to feedback from market participants. Together, we have put the DAX index family in the best possible position for the future.”

 

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