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Big changes are coming to Germany's DAX. The most striking change to the share index is simply the number of additional new members. On 20th September, 2021, Germany’s flagship DAX Index will expand from 30 to 40 constituents, concluding the biggest reform in the benchmark’s 30-plus year history.
The Change
The new additions will make the index more representative of the German economy. Although some names such as Airbus, Siemens Healthineers & Porsche Holding are well known, some lesser-known growing companies will also join the index.
This latest reform is a direct response from Deutsche Börse — the company behind the index — to the Wirecard scandal. The payment processor's demise was one of the biggest corporate disgraces in modern times. And even though it filed for bankruptcy last June, it was only replaced in the index by Delivery Hero in August 2020 because of the rules in place as to when companies can be added or removed.
New Rules
In the future, the criterion for membership in the DAX will mainly be market capitalization, which means the company's total stock market value. Trading volume will no longer take precedence.
Additionally, companies must have been profitable for two years without interruption before they are allowed into the DAX index. That's a feat Delivery Hero has still not managed today, and thus will no longer be a part of DAX as per the new criteria.
Moreover, DAX companies are now required to publish quarterly statements and audited annual results, with a fast exit for those who fail to do so.
New Additions
The DAX is making a small step from a dividend index toward a growth index. The new index should provide increased liquidity to more companies on the German stock exchanges due to improved regulations in place. The below table illustrates the new additions to the index.
Name | CMP | Analyst Target Price |
Estimated Return |
Market Cap ( Billion) |
Est Rev Growth (%) |
Beta | Past Sales Growth (17-19) |
Sector |
Airbus SE | €115.18 | €136.04 | 18.1% | 90.53 | 6.03 | 1.37 | 2.4% | Industrials |
QIAGEN NV | €44.48 | €46.74 | 5.1% | 10.17 | 14.47 | 0.42 | 4.5% | Health Care |
Brenntag SE | €84.78 | €90.37 | 6.6% | 13.10 | 12.25 | 0.87 | 6.96% | Industrials |
Sartorius AG | €560.6 | €566.55 | 1.1% | 46.37 | 44.16 | 0.62 | 12.05% | Health Care |
HelloFresh SE | €85.94 | €87.65 | 2.0% | 14.94 | 51.03 | 0.46 | 44.78% | Consumer Discretionary |
Siemens Healthineers AG | €57.16 | €59.15 | 3.5% | 64.48 | 23.09 | 0.61 | 2.42% | Health Care |
Porsche Automobile Holding SE | €86.5 | €108.11 | 25.0% | 26.49 | 7.10 | 1.20 | 1171.85% | Consumer Discretionary |
Symrise AG | €121 | €117.93 | -2.5% | 16.39 | 6.95 | 0.51 | 5.5% | Materials |
Puma SE | €100.55 | €115.00 | 14.4% | 15.17 | 24.56 | 1.08 | 14.93% | Consumer Discretionary |
Zalando SE | €91.78 | €106.28 | 15.8% | 24.04 | 29.00 | 0.92 | 21.23% | Consumer Discretionary |
Outlook
While the average sales growth for the current composition of DAX is 7.84% from 2017 to 2019, the new ten equities have an average sales growth of 128% for the same period mainly due to the growth of Porsche Automobile Holding SE. This spur of growth additions will impact the momentum of the new index improving the long-term outlook.
Moreover, the average estimated growth of the new DAX 40 composition is forecasted to be approximately 15.7%, higher than the current 13.5% for DAX 30. The expansion comes in name of improved regulations and a brighter prospect for DAX.
Risks and Assumptions for Back-tested trading strategies
Data Source: Bloomberg
Data & Prices as of: 16/09/2021
Arun Leslie John
Chief Market Analyst
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