What’s going on?

Germany’s key stock market index exposed a whole new look.

What does this mean?

• In 2020, Wirecard (German fintech giant) collapsed after admitting that $2b it claimed to have in cash didn’t exist. But given its existing rules, the DAX (Germany’s stock market equivalent of the US’s Dow Jones Industrial Average) couldn’t easily remove Wirecard from its index. So the index decided to mend those rules, which demands its members to publish quarterly statements and audited annual results, and will kick out any that don’t release them on time.
• The DAX will expand from 30 to 40 companies, which will see Zalando (online fashion retailer), HelloFresh (food subscription service), and Airbus (aircraft manufacturer) join the team. That’ll add around $415b to an index already worth $2.2 trillion.

Why should I care?

The bigger picture: Inner changes create outer changes, or vice versa

• The DAX is renowned for its dividend-payers, such as SAP (cloud computing provider) and Daimler (luxury carmaker) who regularly making substantial payouts. But new additions like Zalando and HelloFresh are more interested in spending their cash on rapid business growth than they are on paying shareholders.
• That could change the dynamic of the index, and should lure in more growth-focused investors (rather than income-focused ones).

Zooming out: Demand might already have disappeared

• ETFs tracking the DAX with an estimated $19b will invest some of that cash into the index’s new stocks, which could boost their share prices.
• The reverse might happen to some of DAX’s remaining members, as ETFs’ reallocation of their cash could put pressure on the others’ shares.

Content source: Finimize (2021) Oh Sh*t. Available at: https://www.finimize.com/wp/news/oh-sht/ [Accessed on Sep 4, 2021]