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Germany's bigger DAX-40 gets going

Brigitte Scholtes
September 20, 2021

Starting Monday, Germany's blue-chip DAX index will include 10 more companies to become the DAX-40. Selection criteria have been decisively changed.

Frankfurt Stock Exchange
The DAX index has come a long way since 1987 when it started out at 1,000 pointsImage: REUTERS

The 10 newcomers — in the order of their market value — are Airbus, Zalando, Siemens Healthineers, HelloFresh, Symrise, Sartorius, Porsche Automobile Holding, Brenntag, Puma and Qiagen.

The most important selection criterion was the firms' market capitalization on the basis of diversified holdings during the final 20 trading days in August, meaning that stock portfolios of over 5% of the overall value were not considered.

Another important criterion for entry: Companies listed on the DAX now have to log profits — a crucial lesson learned from the Wirecard accounting scandal.

What's the impact?

Pundits are not expecting any major share price fluctuations as a result of the larger German stock market index. What is true is that DAX-related equity funds will have to reflect the changes made in the composition of the index. But large institutional investors have already secured equity stakes in the new DAX members in the past few weeks anyway as most of the names of the newcomers had been known for months.

The DAX expansion is a useful measure, says Jürgen Kurz, a spokesperson for Germany's leading association for private investors, DSW. He notes, though, that the index is still pretty industry-heavy, with only Zalando and HelloFresh joining Delivery Hero in the online retail section.

Joining the health services sector are Siemens Healthineers, vaccine supplier Sartorius and biotech company Qiagen. Symrise is the first DAX firm to represent the food and beverages sector.

German DAX company Merck now has female leader

A lot missing still

DZ Bank investment strategist Christian Kahler criticizes, though, that innovative firms such as BioNTech are not on the DAX index. "We don't have any big IT or tech companies in the top index apart from SAP and Infineon — that's a big drawback for the German market in comparison with the US for instance," he told DW.

The 10 new arrivals do not resolve yet another problem. In almost one-fourth of all executive boards, women are missing completely, with only seven new female leaders joining the boards of DAX companies. Merck boss Belen Garijo remains the only female CEO of a DAX-listed firm.

Robert Halver, a capital markets analyst at Baader Bank, says a further expansion of the DAX to, say, include 50 companies, would already be a major challenge as the stock market value of other firms is far too low. "We just don't have more firing power in Germany in this regard," he said.

Germany still lacks an equity culture that's evident in Anglo-Saxon nations. Some 90% of all enterprises are family-run. Those are predominantly small or medium-sized enterprises (SMEs) but combined they account for 52% of revenues logged by German firms overall.

Among those firms are many global leaders in their respective fields of activity such as auto parts supplier Bosch. Halver says such firms usually hate to adhere to the strict rules that apply to listed companies. "They'd rather work without being bothered instead of presenting a detailed interim earnings report every three months."

Belen Garijo
Merck CEO Belen Garijo ias still waiting for a second female leader at the head of German DAX companyImage: Markus Scholz/picture-alliance/dpa

MDax now weaker?

Whether the DAX enlargement will harm the smaller MDax index is yet unclear, experts say. The MDax comprises medium-sized firms and now shrinks from 60 to 50 members. "The index's 10 former heavyweights are gone," said Halver, which, he added, could mean a temporary weakening of the index.

On the other hand, the remaining MDax firms are often a lot more flexible and show a far more dynamic profit trajectory. Recent developments bear this out clearly. While the DAX has gone from 1,000 points in December 1987 to about 16,000 points now, the MDax has shot up to some 35,000 points, starting from the same level as its bigger brother.

This article was originally written in German.