It is the figurehead for Deutsche Börse – but is the Dax at all representative? In the future, the leading index should be more broadly based. But not all reform requests will be met.
The first German stock exchange league is growing. The reform was already resolved last year as a response from Deutsche Börse to the Wirecard scandal.
Next Friday evening (September 3rd) it will be decided how the German share index (Dax) will be composed from September 20th.
What changes has Deutsche Börse decided?
The most noticeable change: The Dax is increased from 30 to 40 corporations. In return, the MDax of the medium-sized values shrinks again from 60 to 50 companies. In the future, Deutsche Börse only wants to include profitable companies in the Dax. If you want to become a member, you must have been profitable at least on the basis of earnings before interest, taxes, depreciation and amortization (Ebitda) in the previous two financial years.
The composition of the Dax is to be checked twice a year instead of just once a year. The market value, i.e. the market capitalization, becomes the most important criterion. The previous second criterion for inclusion in an index, the stock exchange turnover, is no longer applicable. It will be replaced – and this also applies to the other indices of the Dax family MDax, SDax and TecDax – by a so-called minimum liquidity requirement.
All companies in the various indices of the Dax family have tightened their financial reporting obligations: They have to publish quarterly reports and audited annual financial statements. Otherwise there is a risk of being kicked out of the index, as the stock exchange emphasizes: “After a 30-day warning period, a breach of these requirements will lead to an immediate exclusion from the index.”
Why was the reform launched?
As early as the 30th anniversary of the DAX in July 2018, Deutsche Börse boss Theodor Weimer had been thinking out loud about setting up the leading index “a little broader” – after all, the DAX is the barometer of the German economy. For a long time, the index was dominated by the four sectors of chemistry, the automotive industry, energy and financial services. Now the leading index is supposed to represent the German economy in a more representative way.
The Wirecard accounting scandal accelerated the tightening of the rules. The payment service provider was able to stay in the Dax for months despite billions in air bookings that were exposed in the summer of 2020 and became one of the largest fraud cases in German economic history. The successor was the food supplier Delivery Hero, a company that has never made any money in day-to-day business since it was founded in 2011.
Who is now moving up in the extended Dax?
Airbus is seen as a sure climber. The Franco-German aircraft manufacturer will be the company with the largest market value by far among the ten new admissions. This means that the Dax will in all likelihood get another heavyweight at the level of the automaker Daimler or the insurance giant Allianz. Analysts expect that the Airbus share will have about five percent weight in the overall index. The other nine newcomers will all together probably only make up around eight percent of the future leading index. Due to their size, the new Dax also includes: the fashion retailer Zalando, the aroma and fragrance manufacturer Symrise, the medical technology group Siemens Healthineers, the holding company Porsche, the cooking box supplier Hellofresh and the chemicals dealer Brenntag.
Which companies have been in the Dax from the start?
12 of the originally 30 companies have been listed in the index without interruption since the DAX was launched on July 1, 1988: Allianz, BASF, Bayer, BMW, Daimler (previously Daimler-Benz), Deutsche Bank, Eon (created in 2006 from Veba and Viag ), Henkel, Linde, RWE, Siemens and Volkswagen.
Does the expansion also change the Dax counter reading?
Despite the ten new companies, there is no impact on the score of the leading index. Only the weight of the individual shares changes. The previous 30 members lose part of their weight in favor of the new members.
What do the innovations mean for investors?
For private investors who, for example, invest in the Dax via exchange-traded index funds, not much will change on the whole. These so-called ETFs (Exchange Traded Fund) will be modified accordingly by the providers: They will buy shares of the DAX newcomers according to their calculated weight and sell shares in the previous DAX values.
Which reform proposals have not been implemented?
Defense opponents and environmentalists had unsuccessfully called for companies to be excluded from Dax membership that generate more than ten percent of their turnover from the manufacture of controversial weapons. For example, this would have become a problem for the aerospace company Airbus, which is currently listed in the MDax. The question of whether the Dax should become more moral and whether criteria such as the environment, social affairs and good corporate governance should be weighted more heavily in the selection of members, had banks and brokers, associations and professional investors in an exchange on the planned one Most reforms last year, however, were denied.
Jane Stock is a technology author, who has written for 24 Hours World. She writes about the latest in technology news and trends, and is always on the lookout for new and innovative ways to improve his audience’s experience.
