DAX 40 index: What to know about the change from DAX 30
Ben Lobel August 23, 2021 1:05 PM
The DAX 30 will soon be admitting ten more companies in a move that will affect the industry makeup, weighting potential 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 Germany’s flagship index, representing 30 of the country’s largest companies by market capitalisation. But following an announcement by the exchange operator Deutsche Boerse in 2020, it is set to become even larger when it switches 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 is the DAX 30 changing to the DAX 40?
The DAX 30 is changing 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 will the DAX 30 become the DAX 40?
The DAX 30 will become the DAX 40 in September 2021, according to Deutsche Boerse, but there is currently no specific date earmarked for the change.
What will change when the DAX 30 becomes the DAX 40?
When the DAX 30 becomes the DAX 40, the Deustche Boerse will admit ten more companies to the index, meaning a potential change in the weighting allocations and a broader range of sectors covered, as well as other regulatory provisions.
Potential additions to the index include aerospace giant Airbus SE, e-commerce operator Zalando, and global reinsurance group Hannover Rueck SE, with other likely additions including property company LEG Immobilien and Siemens Energy.
More companies equals a potentially wider range of sectors and a revision to index weightings, meaning traders should understand how the new weighting and particular sector activity can impact the DAX 40 as a whole once the adjustments are implemented.
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, and the potential for revised weighting. This may mean giants such as software company SAP, which currently has the largest weighting in the index, may exert less influence over the DAX’s moves once the changes come in. However, some believe that since the additions will feature smaller-capitalised organisations that 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 30 with us now, and the DAX 40 on its expansion, 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
- Search for the company you want to trade in our award-winning platform
- Choose your position and size, and your stop and limit levels
- Place the trade
Disclaimer: The information on this web site is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement. The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warranty that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.
Futures, Options on Futures, Foreign Exchange and other leveraged products involves significant risk of loss and is not suitable for all investors. Losses can exceed your deposits. Increasing leverage increases risk. Spot Gold and Silver contracts are not subject to regulation under the U.S. Commodity Exchange Act. Contracts for Difference (CFDs) are not available for US residents. Before deciding to trade forex, commodity futures, or digital assets, you should carefully consider your financial objectives, level of experience and risk appetite. Any opinions, news, research, analyses, prices or other information contained herein is intended as general information about the subject matter covered and is provided with the understanding that we do not provide any investment, legal, or tax advice. You should consult with appropriate counsel or other advisors on all investment, legal, or tax matters. References to FOREX.com or GAIN Capital refer to StoneX Group Inc. and its subsidiaries. Please read Characteristics and Risks of Standardized Options.