German leading index: bumpy start for the new DAX with 40 corporations

For the first time in its more than 30-year history, the German share index comprises 40 companies. The ten additional DAX members have been on the course slip since Monday.

The aim of the reform of the most important German stock market barometer: The leading index should provide a more comprehensive picture of the German economy. In addition, Deutsche Börse applies stricter standards to the members of the Dax family.

The start for the newly established DAX was bumpy, because the crisis at the Chinese real estate company Evergrande weighed on the courses. The leading index slipped at times close to the 15,000 mark, a low since mid-May. It closed 2.31 percent lower at 15,132.06 points. Several rating agencies had further downgraded Evergrande’s creditworthiness and warned against payment defaults. “The fear of the next real estate crisis is currently great,” wrote analyst Christian Henke from broker IG.

The China risks combined with reluctance to buy in the face of monetary policy signals from the US Federal Reserve this week resulted in a toxic mix on the stock market. With the realignment of the Dax, however, the decline has hardly anything to do, explained analyst Konstantin Oldenburger from the trading house CMC Markets. Since the DAX record in August with over 16,000 points, economic pessimism has increased.

Among the ten newcomers, Airbus is by far the company with the largest market value. With the Franco-German aircraft manufacturer, the Dax is getting another heavyweight at the level of the automaker Daimler and the insurance giant Allianz.

Also new to the Dax are the chemicals dealer Brenntag, the cooking box supplier Hellofresh, the holding company Porsche, the sporting goods manufacturer Puma, the biotechnology and diagnostics company Qiagen, the pharmaceutical and laboratory supplier Sartorius, the medical technology group Siemens Healthineers, the flavor and fragrance manufacturer Symrise and the online Fashion retailer Zalando.

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 chemical, automotive, energy and financial services sectors. Now, for example, aspiring internet companies should also get a place.

The Wirecard accounting scandal accelerated the tightening of the rules. The Munich-based 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.

Because according to the rules in force at the time, Deutsche Börse could not simply throw the share out of the index overnight. There was also criticism that the food supplier Delivery Hero was promoted to the Dax for Wirecard and thus a company that has never made any money in day-to-day business since it was founded in 2011.

In the future, Deutsche Börse plans to review the composition of the Dax twice a year instead of once a year. Only profitable companies should be included. Bankruptcy candidates and corporations who fail to comply with their duty to publish interim reports on time should no longer have lost anything in the first division.

At the same time as the Dax expansion, the MDax of the medium-sized stocks will be reduced from 60 to 50 titles and will lose weight. Five companies from the SDax small cap index moved up to the reduced MDax on Monday: the Vodafone transmitter mast subsidiary Vantage Towers, the recycling specialist Befesa, the forklift manufacturer Jungheinrich, the financial services provider Hypoport and Zooplus, an online retailer for pet supplies. The MDax went out of trading on Monday with a minus of 1.4 percent to 34,799.59 points.