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CommentDax40 – bigger, but not greener

Frankfurt Stock Exchange: The leading index Dax is enlargedimago images / sepp spiegl

The Dax is without a doubt the most important index for German stocks. It is often referred to as the leading index, although it is completely open where it should actually lead. Because despite all the media fixation on the Dax, the German stock market remains a marginal phenomenon of the global capital markets. In the MSCI World index of industrialized countries, just 2.8 percent of the volume is accounted for by German stocks, which is less than stocks from Canada or Switzerland.

So there can be no question of a leading index. Deutsche Börse definitely had the chance to develop its most important index, which incidentally was originally developed by Börsen-Zeitung, into a leading global index – for sustainability. The Dax could have become an ESG-compliant index, so it was put up for discussion by the stock exchange for the reform debate that has now ended. There was apparently resistance to this, for example from the Deutsches Aktieninstitut.

Dax40 without ESG criteria

The new Dax, which will then contain 40 stocks from September 2021, will not be determined according to ESG criteria. The stock exchange is missing the chance to create the first sustainable national index in a large industrial country. That would serve as a role model and would suit the exchange well after the recently announced takeover of the ESG data specialist ISS. A “green” Dax could actually have become the leading index.

A bit of regret about this also sounds like the stock exchange’s statement: “We received a very heterogeneous opinion on the topics of sustainability and ESG outside of the proposals we made on governance. The fundamental question is raised from many sides whether these criteria should play a role in the selection of Dax members, ”Stephan Flägel, global index chief of the index subsidiary Qontigo, is quoted as saying. And further: “That is why we will continue the exchange with market participants. Sustainable investing is and will remain one of the most important trends in the financial markets and will fundamentally change investment behavior in the years to come. “

In the end, however, the stock market could come too late, because alongside the Dax, the ESG-Dax (with 50 members), which has been available for over a year, will hardly be able to establish itself on the capital markets. Since many investors would also like to invest the breadth of the German economy, and not only in the standard values, which are always problematic, a broader index would have been in anyway. The UK FTSE100 index would be a good role model. Because even in the future there will be constant ups and downs between Dax, MDax (in the future 50 instead of 60 members) and SDax, which brings unrest. The broad MSCI Germany index therefore remains an alternative for investors in Germany, including an ESG variant.

What is a target price of 14,000 points worth?

However, the real challenges for investors do not lie in the composition of the index. The move raises a number of questions. First of all, it is important to know on which basis the Dax40 should be calculated at all. Is it calculated back or does it start at 1000 points, like the Dax30 on December 31, 1987? So what are the price targets of 14,000 euros that are being issued by many banks these days for the end of 2021?

The answers concern a large number of products on the Dax. While ETFs could easily be supplemented by ten stocks, it becomes much more difficult with derivative products such as certificates. Mathematicians and marketers at the underwriters should have work to do.

For professional investors, the question will be how the Dax future futures contract will be calculated from next September, whether there will be jumps in the price or other distortions. The Dax future is popular with international investors because the Dax typically reacts significantly to economic fluctuations. This is due to the heavy weight of so-called cyclical companies, whose price fluctuates more strongly than that of defensive sectors with economic development. International investors, who often regard German stocks as peripheral, therefore like to bet on economic recovery via the Dax future.

The Dax needs further reform

If you look at the newcomers on the basis of current data, little should change in the cyclical nature of the Dax. Based on the index ranking published by the stock exchange on November 6th, the following ten companies would be added to the DAX: Airbus, Symrise, Zalando, Sartorius, Qiagen, LEG Immobilien, Brenntag, Siemens Healthineers, Hannover Re and Hellofresh.

Hellofresh, a supplier of cooking ingredients, also fulfills the requirements to deliver a positive operating result (Ebitda) for two quarters in a row. Like Delivery Hero, the Berliners report an adjusted Ebitda with limited informative value, but even on an Ebit basis, the Berliners are clearly in the black. At Delivery Hero, which replaced Wirecard in September, however, the numbers are deep in the red – with little prospect of any changes soon. According to the new rules, Delivery Hero would not have been included in the Dax, but is now protected as a grandfather.

So there is a need for further reform so that the Dax can secure a certain relevance. Incidentally, this also means that the Dax is the only important national index to be calculated as a performance index, i.e. including dividends. This prevents international comparability and contradicts the idea of ​​a leading index.


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