Germany’s main stock market index, the Dax, is undergoing its biggest rule makeover so far.
The number of constituents will rise from 30 to 40, trading volume will be dropped as a selection criterion, and new members must have been profitable for two years before first-time admission.
Governance standards have also been tightened.
While the index will become more diversified and slightly “younger” as a result, the enlargement is unlikely to reduce the massive overweight of the manufacturing sector.
In our view, the new profitability requirement creates a questionable bias against young and rising start-ups.
Furthermore, index rules cannot solve the fundamental problems hindering a stronger stock market (culture) in Germany – in our view, only policymakers can and should.
Germany’s share in global market cap is only about half of its weight in the global economy, and the most valuable company in the world is worth more than the entire future Dax 40 combined.