The leading European index DAX30 was expanded by another 10 companies
Meet the DAX40
The German company Deutsche Boerse, specifically its subsidiary Qontigo, announced that from Monday, September 20, 2021, the major European index DAX30 was expanded from the original 30 companies to 40. The reason for this step is to gain more diversification to ensure greater stabilization for the DAX index. One of the impetus for this adjustment was the collapse of the Wirecard company in 2020.
Expanding the number of companies included in the DAX index will help gain more attention from international investors. The index will gain more diversity by adding industries such as e-commerce and medical technology.
Index DAX and general context
This is the largest revision of the index since 1988. The DAX30 index is the German stock exchange index of the Frankfurt Stock Exchange and was introduced on December 30, 1987. Its initial value was set at 1,000 points. Historical data were recalculated back to 1959.
Up to this point, equities were included in the index on the basis of two criteria - trading volume and market capitalization. The input data for the calculation of the value of the DAX index are drawn from the market prices of XETRA e-commerce shares.
Following 10 companies were added to the DAX index from Monday, September 20:
- Airbus SE
- Zalando SE
- Siemens Healthineers AG
- Symrise AG
- HelloFresh SE
- Sartorius AG Vz
- Porsche Automobil Holding
- Brenntag SE
- Puma SE
- Qiagen N.V.
New rules apply to companies in the DAX40 index
And the aforementioned case regarding the collapse of the Fintech company Wirecard, which falsified its financial results, is behind a change in some rules for companies on the DAX index.
Rules for admission of companies to the DAX index
The first rule that is being changed concerns the criteria necessary for companies to be included in the index. Newly, only the market capitalization of the company will be taken into account. This eliminates the criterion related to the volume of trades executed. Potential applicants for inclusion in the DAX will also have to report 2 consecutive years of profitability, defined at the EBITDA level.
What can traders expect from the DAX index?
It is unlikely that there will be any wild buy sessions or sell-offs affected by the expansion of the index in the short term. The market is completely sure which new shares will be added to the index.
However, a certain caution is in place, this is a large-scale revision and more significant intraday movements can be expected. This period can bring new market opportunities for traders who are looking for high volatility and are willing to accept increased risk.
If we want to assess the impact of this revision in the long run, then it is almost certain that an increase in the number of stocks in the DAX index will result in reduced system volatility. Because if we add other, less correlated, companies to a system that is at a certain degree of correlation, it will necessarily lead to a calming of the whole system and a reduction in intraday volatility.
In the long run, this could be an attraction for traders who have previously ignored the DAX index due to its high intraday volatility and often aggressive movements.