DAX: an important year for the index
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 expand to 40 companies instead of 30 so far.
DAX reaches all time high
The major German stock index reached its all-time high on April 6th 2021, when it reached 15,311.86 points. This continues the series of all-time highs reached earlier this year. 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 imports to the United States and the German companies are likely to benefit from these higher US imports.
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’a 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.
On April 6th 2021, the DAX index reached 15,243.39 points compared to 10 075.17 points on April 6th 2020. The index reached its 52-week low on March 19th 2020 when the index quoted at 8,257.53 points and reached its 52-week 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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This information is in the sole responsibility of the guest author and does not necessarily represent the opinion of Bank Vontobel Europe AG or any other company of the Vontobel Group. The further development of the index or a company as well as its share price depends on a large number of company-, group- and sector-specific as well as economic factors. When forming his investment decision, each investor must take into account the risk of price losses. Please note that investing in these products will not generate ongoing income.
The products are not capital protected, in the worst case a total loss of the invested capital is possible. In the event of insolvency of the issuer and the guarantor, the investor bears the risk of a total loss of his investment. In any case, investors should note that past performance and / or analysts' opinions are no adequate indicator of future performance. The performance of the underlyings depends on a variety of economic, entrepreneurial and political factors that should be taken into account in the formation of a market expectation.