DAX: an important year for the index

DAX: an important year for the index

29 March 2021Reading time: 3 minutes

The major German index DAX not only recovered from the losses it suffered in March 2020, but it reached an all-time high this month. 2021 is going to be an important year for the index not only because of this record, but also because the index will be extended to 40 companies instead of 30 so far.   

DAX reaches all time high

The major German stock index reached its all-time high on March 18th 2021, when it reached 14,804 points. This continues the series of all-time highs reached in March: this is the fifth time this month that a new record is set. Despite the possibility of a third coronavirus wave in Germany, many investors seems to be confident about the major German companies. A sign of this optimism is that the volatility of the DAX index reached a one-year low in March and decreased almost continuously throughout this month, falling below 20% on March 18th. A low volatility is generally a sign that investors are optimistic about the future. On the other hand, a high volatility generally shows a lack of confidence in the future. The major reasons for this optimism were the recent good news from the United States. The Federal Reserve announced that it will not increase its interest rate to support the American economy and some US states, such as the state of New York, have started to ease the COVID-19 restrictions. A growing US economy means higher importations in the United States and the German companies are likely to benefit from higher US importations.
In Europe, the EU recovery plan is also likely to have a positive impact on the German economy. However, the last days also brought some bad news for the German economy: several European countries are implementing restrictions again and fear a third COVID-19 wave, including Germany. Will this lead to a bearish market or will the current bullish phase continue? The question remains open so far.  

DAX will include 40 companies

As a direct consequence of the Wirecard scandal in June 2020, the Deutsche Boerse Group, which owns the DAX index, announced the most important reform in the index’ history. The transparency standards for a company to be admitted in the index have been increased and conditions on the company’s revenue have also been implemented. Since December 2020, companies need to have at least two years of positive EBITDA (Earnings before interest, taxes, depreciation and amortization) to be admitted in the index. The most apparent part of the reform is probably the extension of the index to 40 companies in September 2021. So far, the 30 major German companies were part of the index. The aim of this extension is to make the index more representative of the entire German economy.
So which companies could pretend to enter the index? Based on their current market capitalization, companies like Airbus SE, the reinsurance company Hannover Re, Siemens Energy or the e-commerce company Zalando have good chances of entering the index. Of course, their market capitalization may vary significantly until September 2021 and the final composition of the index will only be known then. 

Stock overview

On March 18th 2021, the DAX index closed at 14 775.52 points compared to 8 441.71 points on March 18th 2020. The index reached its 52-weeks low on March 19th 2020 when the index quoted at 8,257.53 points. It reached its 52-weeks high on March 18th 2021 when the index quoted at 14 804.01 points.

The future price of the index is subject to several political, industrial and sector specific as well as economic factors. Investors should consider these risks when making their investment decisions. Developments can be different at any time than investors anticipated on, which could result in capital losses.

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27/11/2022 15:54:00