Germany’s famed DAX 30 index has been updated, reorganized, and expanded to include ten more company shares. Exchange operator Deutsche Börse announced plans for the change in 2020, taking ten of the largest companies from the MDAX. The update affects the selection criteria, market capitalization, and regulatory practices of the index, so read on for details of how it could affect traders.
New Selection Criteria
The DAX 40 index will now consider members based on liquidity rather than stock exchange turnover when ranking constituents. This does not affect the market capitalization requirements, but companies will also need to have been profitable over the last two financial years.
Moreover, companies will need to incorporate a new audit committee on their supervisory boards by September 2022, in compliance with the German Corporate Governance Code. The index as a whole will also now be reviewed twice a year, rather than once, and a requirement is in place for quarterly statements and annual audit reports.
The MDAX, Deutsche Börse’s mid-level stock index, will be quite significantly impacted by the change. The top ten companies on the index will now be removed, taking a large portion of its market capitalization, potentially reducing its liquidity, and lowering the number of member companies from 60 to 50.
This could have quite an effect on day traders looking to profit from this portion of the German economy.
DAX 40 Additions
The ten companies added to the new DAX 40 index at its conception were Airbus, Brenntag, Healthineers, HelloFresh, Porsche Automobile Holding, Puma, Sartorious, Siemens, Symrise, Qiagen and Zalando. The inclusion of more companies will help the index cover a wider range of industries and sectors, as well as shifting the weighting of existing members.
Impact On Traders
The inclusion of another 10 major companies to form the DAX 40 will hit more sectors, reduce the respective weighting of each component and result in a more frequent membership review.
At first sight, it seems that this would increase the representation of various industries, resulting in a better measure for the German economy. Where before this was done using the DAX 30 and MDAX, traders can improve their exposure with the use of just one index.
However, the shift in component weightings may mean that the larger, more influential companies will become less impactful. This could result in the need for investors to rethink their fundamental analysis, reform their prediction algorithms and research new industries and financial sectors.
For a complete guide to trading the DAX 40, see our dedicated page here.