The Dax is growing. From September 2021 on, 40 instead of 30 companies will be playing in the first German stock exchange league.
The Wirecard balance sheet scandal has one good thing: The German leading index Dax is getting new rules. The sudden crash of the payment service provider, once celebrated as a star on the stock market, shocked the German financial center. Following falsification of the balance sheet, allegations of fraud and the insolvency of Wirecard AG, Deutsche Börse determined in June that it was now a matter of “strengthening confidence in the capital market”.
Now things will be different in the German share index, as the Frankfurt market operator announced on Tuesday. The most noticeable change: The Dax is growing. From September 2021 on, 40 instead of 30 companies will be playing in the first German stock exchange league. In return, the MDax for medium-sized stocks will be reduced from 60 to 50 companies two years after its expansion.
As early as the 30th Dax anniversary in July 2018, Deutsche Börse boss Theodor Weimer had been thinking out loud about “setting up the Dax a little broader” – after all, the Dax is the barometer of the German economy and the flagship for the stock exchange. Every evening, the courses from the Frankfurt trading hall flicker into Germany's living room at the best TV airtime.
One goal of the current reform: The leading index should become more representative. In its new composition, the Dax will “map the largest listed companies in Germany even more comprehensively,” emphasized the stock exchange. For a long time, the Dax was dominated by four industries: chemicals, automotive, energy, and financial services. The problem: If one of these industries comes under pressure – most recently the car manufacturers, for example – it paralyzes the entire index.
“A Dax reform was overdue at least since the Wirecard scandal,” commented Marc Decker from the private bank Merck Finck. The changes are only the first step. “In fact, there are … much larger weaknesses that can only be partially resolved by reforming the index rules: on the one hand, the underdeveloped stock culture and, on the other hand, the relatively low market capitalization of German corporations.” Measured by the market value of its members, the Dax is a lightweight in an international comparison.
In the future, the stock exchange only wants to include profitable companies in the Dax. Bankrupt candidates and corporations who fail to comply with their duty to publish interim reports on time should no longer have anything to do with the Dax.
Even during the deliberations on the proposed changes, there were skeptical voices. It can be assumed that “due to the profitability requirements, young and fast-growing companies in particular, which, however, still lack the corresponding profits, will be denied access to the stock market Olympics,” wrote analysts at the Cologne asset manager Flossbach von Storch.
Take Delivery Hero, for example: the food delivery company replaced Wirecard in the Dax in mid-August. However: Delivery Hero has never made any money in day-to-day business since it was founded in 2011. The good news for the newcomer among the Dax-Dinos: Those who are already in the Dax will not be thrown out due to the stricter rules.
12 of the 30 companies have been listed in the index without interruption since the DAX was launched on July 1, 1988: Allianz, BASF, Bayer, BMW, Daimler (previously Daimler-Benz), Deutsche Bank, E.ON (created in 2006 from Veba and Viag), Henkel, Linde, RWE, Siemens and Volkswagen.
There is continuity in the Dax family – to the chagrin of arms opponents and environmentalists – also in another point: The proposal to exclude companies that generate more than ten percent of their sales with the manufacture of controversial weapons failed. For example, this would have become a problem for the aerospace company Airbus, which is currently listed in the MDax.
“We got a very heterogeneous opinion on the topics of sustainability and ESG …”, summarized Deutsche Börse the four-week exchange with market participants, also with a view to criteria such as the environment, social affairs and good corporate governance (ESG for short). “The fundamental question is raised from many sides as to whether these criteria should play a role in the selection of Dax members.” More than 600 responses were received: from banks and brokers, associations and professional investors. The resistance to the question of whether the Dax should become more moral was particularly strong.
The Dax rules should “not be a gateway for socio-political debates and opinions,” the German stock institute emphasized in its statement. The Dax family should give investors “concentrated information about the development of the entire stock market”. “This does not include evaluating the business models of the index members against the background of socio-political debates and, if necessary, excluding them,” wrote the institute.
According to Greenpeace, Deutsche Börse “missed the great opportunity to link access to the Dax to ethical criteria”. The Urgewald initiative criticized the new rules as a “step backwards for human rights and climate protection in the financial sector”.
Ingo Speich, Head of Sustainability at Deka, rates the new rules as a “significant qualitative improvement”: “A broader Dax also means more diversification and thus more stability.” According to the Hamburg Sutor Bank, private investors have little benefit from the reform: “Regardless of whether the Dax contains 30 or 40 values – private investors should better stick to other, more broadly diversified indices. That not only reduces the risk, it can also Improve performance. “
