YLDFX on why a DAX rebalance is inbound

In 1988, we saw the launch of the German Stock index benchmark, the Dax 30. On Monday, September 20th, we will see the Deutsche Boerse rebalance the Dax 30 and it will become the Dax 40, as 10 new companies are added to the leading German index. The Deutsche Boerse states the reason for this change is to bring a greater level of accuracy to the overall picture of the German economy and bring more liquidity to a wider range of shares. As leading tracker benchmarks will have to add the new shares to their holdings. The change has also brought in new requirements and rules for companies listed on the index.

Going forward, they are required to ensure the following:

1. Their EBITDA (earnings Before Interest, Taxes, Depreciation, and Amortisation) has been positive for their two most recent financial reports.
2. Mandatory appointment of an independent audit committee
3. Quarterly financial statements must be published, and accounts audited
4. Composition reviews will now be Bi-Annually rather than Annually as before.
5. Trading Volume will replace Turnover.

A large contributing factor for the addition of 10 new members to the index and the tightening of rules, was the Wire card Accounting scandal where over €2 Billion was unaccounted for. The German Payment payment processor and financial services provider was Investigated by the Financial times alongside a number of whistle-blower reports of malpractice and fraud. This led to the company filing for insolvency in June 2020, only 2 years after it was first promoted to the Dax 30 Index.

So, who are the new entrants to the Dax ‘40’. You’ll see that most of these companies are well established and far from new to the industry or market:

• Airbus – Aerospace manufacturer with both civilian and military aerospace products.
• Brenntag – German chemical distribution company, founded in 1874
• Hello Fresh – Popular pre-packed fresh Meal kit provider
• Porsche – Luxury performance car maker
• Puma –  Casual and Athletic sportswear brand
• Qiagen – German provider of sample and assay technologies for molecular diagnostics, applied testing, academic and pharmaceutical research.
• Sartorius – biopharmaceutical industry and laboratories
• Siemens Healthineers – medical devices manufacturer
• Symrise –  Major producer of flavours and fragrances
• Zalando – Online retail giant with 24.4 Billion Euro market cap

We spoke with an analyst from YLDFX who recently featured in The Bangkok Post for their thoughts on the new additions and the future of the German Index:

“The Dax 30 is one of our most popular instruments and we feel that the addition of the new companies will only strengthen the Dax into the future providing a more rounded picture of the German Economy. The addition of companies such as Hello Fresh from outside the usual Mechanical and Industrial dominated market will bring an added level of stability to the index. Our overall bias on the Dax remains Long with price to be in excess of 16,200 by the end of 2021.

We have seen Dax recover and rally past pre covid highs by 16% out performing its UK rival the FTSE 100 which is yet to reach its pre covid levels of 7,700.”

The above information does not constitute any form of advice or recommendation by London Loves Business and is not intended to be relied upon by users in making (or refraining from making) any investment decisions. Appropriate independent advice should be obtained before making any such decision.