By Suyeba Aslam
Your commercial awareness dose.
Deutscher Aktien Index, famously known as DAX is a blue-chip stock market index which operates in Germany. It represented up to 30 of the largest and liquidated companies in all of Germany, who trade using the Frankfurt Exchange. To predict the value of the DAX Index, numbers are transferred through an electronic trading system called Xetra. According to Investopedia.com, the DAX Index use “a free-float methodology to calculate the index weightings along with a measure of the average trading volume”.
The German stock index evolved in July 1988 with a starting index level of 1,163 points, with the following companies as DAXs’ first few constituents: Allianz, Volkswagen, Deutsche Bank, BMW, Deutsche Lufthansa and so many more. It was the very same year the country had been divided into two states. However, due to the reunification and destruction of the Berlin wall in November 1989, the value of DAX had risen to 60 per cent. As political tension began to rise once again, the German index encountered a loss of 13 per cent within the first seven weeks of the reunification. Nonetheless, whilst the reunion was maturing, DAX began to slowly recover by March 1990.
All had been stable, until 1998 when the collapse of the hedge fund had occurred. It was also the very same year the Rouble had devalued, negatively impacted Germany’s economy due to being Russia’s largest lender. Only until the creation of the Euro in 1999, the DAX had finally managed to retrieve itself. After entering the new millennium, it climbed up 27 per cent in tech stocks within the first ten weeks. By 2000, DAX had lost 73 per cent in trade due to the failure of the TMT sector and the aftermath of the Twin Tower bombing attacks. Experiencing further downfall, the index had lost 55.9 per cent in 2007 as a result of the global financial crisis.
Revival had later followed through, allowing the index points of DAX to rise to 7,454- until the European Sovereign debt crisis came crashing, leading to loss of 33 per cent. As relationships between the European and Chinese market became more volatile- there was a constant fluctuation of benchmarks, until 2014 DAX had set a new record of 12,398 points. Although there was a somewhat promising future, there were also growing concerns as DAX another loss of 30 per cent due to the negative outlook of towards Chinese markets hit the global markets once again. Following, a never-ending period of profit and loss, by June 2017 the German Index had managed to set a new record of 12,678.
However, proven by this small analysis, this is not the end as due to many social and economic pressures applied such as German elections, activity within the Eurozone and the US the German index will evolve.
DAX 30 to DAX 40- Is this the right time to invest?
In recent news, announcements were made that the blue-chip index will expand its stock index to 40 companies from its usual of 30. However, to join the index membership rulings will now become much stricter, according to Reuters who had quoted the exchange operator Deutsche Boerse in October.
The German Index had come to this decision as a result of the Wirecard accounting scandal. It was said to be one of the worst occurrences within the history of the index. The scandal had caused a major rupture within the German financial markets to which auditor EY had described the event as a “sophisticated global fraud”. Reasons as to why the number of indices had increased are because exchange operators wanted to improve the situation of the stock index by taking such action. In which, they anticipate having better quality constituents and improved indices by the enforcement of harsher membership criteria.
Companies must provide evidence that they can produce less than 10 per cent in revenue so that they have any chance of eligibility within the DAX selection indices. Including DAX, MDAX, TecDAX and SDAX. In an announcement given by Deutsche Boerse, the transition from DAX 30 to DAX 40, is expected to take place during the third quarter of 2021.
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