The German Stock Index or DAX 30 Stock Market Index (full name, Deutscher Aktien IndeX) is a collection of thirty large, blue-chip companies in Germany trading on the Frankfurt Stock Exchange.
The DAX 30 is a capitalisation-weighted index – like the FTSE 100 and the S&P500. Therefore, it measures the performance of the 30 biggest traded companies in Germany.
The importance of the DAX is that it tells you how strong the German economy is. It also helps you to gauge investor sentiment towards German equities.
Exactly thirty companies comprised the DAX when it started in 1988. However, 16 of the original bunch are still on the index, making it relatively stable. You may recognise some of the names include Adidas, BMW, Lufthansa, SAP, and Siemens.
The index began with a base date of 30th December 1987 and a base value of 1,000. Mergers, takeovers, restructurings, and bankruptcies have been common scenarios in the DAX over the years.
Keeping Order in the DAX
Only companies on the Prime Standard – the Frankfurt Stock Exchange – can belong to the DAX 30. Besides meeting other requirements, at least ten per cent of a DAX 30 company’s shares need to be in the hands of public holders to fulfil admission requirements.
A company ceases to be part of the DAX if it falls to the 45th position or lower in terms of market capitalisation. Insolvency is another reason for companies exiting the DAX.
A position of 25th or higher is required to gain entry into the DAX 30 exclusive club. The Board of the Deutsche Borse or German Stock Exchange meets every quarter to determine what companies to admit and exclude from the DAX.
DAX 30 companies have a capped weight of 10 per cent. It is to ensure that companies meet the legal requirements of the index. However, there’s a more important reason – to ensure that mergers and acquisitions do not create an index behemoth that will overwhelmingly tilt the balance of the index.
It’s necessary that you check how the major companies of the DAX are performing and how their respective industries are doing too.
Best DAX Stocks to Invest in
As of 6th January 2022, the top Germany DAX stocks by growth and performance include:
- MERCK Kommanditgesellschaft auf Aktien (MRK)
The price gain for this stock has been 63.88 per cent for 2021 year-to-date. Merck has a market capitalisation of 99.13 billion.
Classified as the Drug Makers Specialty Generic business, the stock price nearly doubled in 12 months in the aftermath of a pandemic.
- Linde plc (LIN)
Linde has a market cap of 156.17 billion euros and a current stock price of EUR 304.5. Over the past year, the lower limit of the stock has been EUR 199.7. The price gain itself has been 43.08 per cent 2021 year-to-date.
Linde is an industrial gas company operating in Africa, Asia, Europe, North America, South America, and the Middle East. Its YTD returns are enviable.
- Deutsche Post AG (DPW)
Sporting a price gain of 38.40 per cent 2021 year-to-date, Deutsche Post AG’s current share price is EUR 56.26. Market capitalisation is EUR 69.71 billion, while the 52-week price range is a deceptive-looking EUR 39.7 – 61.28.
Deutsche Post also does Industrials, Integrated Freight Logistics, Logistics, Transportation & Logistics, Transportation, Logistics, among other businesses.
Other DAX stocks you can invest in for long-term dividends include:
- E.On SE
- Siemens AG
- Infineon Tech. AG
- Deutsche Bank AG
- Bay.Motoren Werke AG
- Volkswagen AG
- Daimler AG
Investment Opportunities and Threats
The DAX 40 comprises Germany’s biggest companies. That doesn’t mean you can invest in it. Instead, you may invest in ETFs (exchange-traded funds) and ADRs (American depositary receipts) in Europe’s largest economy (which happens to be the fourth largest in the world).
A strong economy and economic plan in critical sectors certainly bode well for your investment. Other advantages include Germany being a significant member of the European Union membership and possessing a highly educated workforce and unified taxes.
Germany’s public traded companies enjoy a few perks and business-friendly policies that other economies don’t offer.
However, investing in Germany’s DAX means taking a chance on an economy that can’t sit out bailouts because of its size.
Besides, Euro nations have a thread of sovereign debt connecting them. So when one country fails to pay its debts, this inevitably affects the balance sheets of others, including Germany.
Then, there’s the issue of demographics. An ageing population alongside a fertility rate of 1.54 in 2019 is a growing burden on its social welfare programs. However, note that these figures are still better than elsewhere in Europe.
Investing in the German DAX 40 companies is an attractive investment strategy. The ETFs offer a way to do so; however, US stock exchanges are an accessible marketplace to purchase these securities.
The ADRs are a convenient way to avoid the hassles of trading stock on US exchanges because you’ll not be using them.
Investing in the DAX companies offers diverse exposure to companies based in Germany.
Note: Please do not invest money or assets in the financial markets that you cannot afford to lose. This article should not be construed to be investment advice and is for information purposes only.