DAX 40 index: What to know about the change from DAX 30
Ben Lobel September 20, 2021 9:29 AM
The new DAX 40 has been formed by admitting ten more companies in a move that will affect the industry makeup and the regulatory practices of Germany’s flagship stock index. Here’s more on the move from DAX 30 to DAX 40.
The DAX 30 is how Germany’s flagship index was formerly known, representing 30 of the country’s largest companies by market capitalisation.
But following an announcement by the exchange operator Deutsche Boerse in 2020, it has become even larger with a switch to the DAX 40, incorporating ten of the largest companies from Germany’s MDAX listing. Here are the key points for traders to know about the change.
Why has the DAX 30 changed to the DAX 40?
The DAX 30 has changed to the DAX 40 in order to increase the quality of the DAX indices, provide a more comprehensive picture of Germany’s largest businesses, and align the DAX indices with international standards, the Deutsche Boerse has said.
The decision was made in conjunction with a set of further reforms to the German index, such as the toughening of corporate governance rules, following an accounting scandal at payment processing company and former DAX 30 constituent Wirecard.
When did the DAX 30 become the DAX 40?
The DAX 30 became the DAX 40 on September 20 2021.
What changed when the DAX 30 became the DAX 40?
When the DAX 30 became the DAX 40, the Deustche Boerse admitted ten more companies to the index, meaning a slightly broader range of sectors covered, as well as other regulatory provisions.
Additions to the index were Airbus, Zalando, Siemens Healthineers, HelloFresh, Symrise, Sartorius, Porsche Automobile Holding, Brenntag, Puma and Qiagen.
More companies equals a potentially wider range of sectors, as mentioned. There may also be small revisions to index weightings, meaning traders should understand how the new weighting and particular sector activity can impact the DAX 40 as a whole.
Selection criteria change
While previously the DAX 30 considered stock exchange turnover for its rankings, now index members will be considered for liquidity levels instead.
New members will have to demonstrate the usual market capitalisation credentials, but now they must prove their profitability over their two most recent annual financial statements. This has implications for companies similar to Delivery Hero, which replaced Wirecard in the DAX 30 despite having never recorded a profit. Under the new rules, Delivery Hero would not be eligible.
Companies must also comply with the recommendations of the German Corporate Governance Code, which involves having an existing audit committee on the supervisory board. For existing members of the index, a transitional period will mean compliance is delayed until September 2022.
Additional compliance requirements
The DAX indices will undergo another review, with two scheduled main reviews a year to replace the single annual review carried out in September. There will also be a requirement to publish timely quarterly statements and audited annual results, Deutsche Boerse unit Qontigo has revealed.
Impact on MDAX
The change will mean that the MDAX, the German index that covers companies of a lesser value, will lose around a third of its total market cap as it reduces the number of constituents to 50 from 60, leading some commentators to express concern over potential reduced liquidity for the smaller index.
How might the DAX 40 impact traders?
As mentioned, the expansion of the DAX 40 will mean more companies, more sectors, a more regular review of DAX membership, and the potential for revised weighting. However, to the latter point, some believe that since the additions will feature smaller-capitalised organisations, any change at the top of the index won’t be significant.
The potential increase in representation across industries could mean the wider DAX proves a better proxy for the German economy, as speculators are able to see more diversity of sector across one index rather than two. As constituent companies change positions within the index, there may be an increasing need for traders to revise their fundamental analysis and research sectors with which they were previously unfamiliar.
How to trade DAX 40 and other indices
You can trade the DAX 40 with us under 'Germany 40', along with a wide range of other indices and stocks.
Simply follow these easy steps to get started.
Open an account, or log in if you’re already a customer
• Open an account in the UK
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- Search for the market you want to trade in our award-winning platform, in this case, 'Germany 40'
- Choose your position and size, and your stop and limit levels
- Place the trade
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