Rule changes for DAX indices – the TecDAX stands to be a beneficiary

Deutsche Börse is planning to eliminate the current distinction between the “Tech“ and “Classic“ segments. This will allow companies belonging to the technology segment to be included in the MDAX or SDAX. A further innovation is that bluechip DAX stocks which are classified as belonging to technology sectors (e.g. Infineon, SAP or Deutsche Telekom) can now also gain admittance to the TecDAX Index.

What is more, the MDAX and SDAX indices are to be enlarged: the number of MDAX components will be rising from 50 to 60 and the number of SDAX components from 50 to 70. The TecDAX will encompass 30 stocks in future too. The new methodology will be used for the first time for the September chaining, thus being reflected in index calculation from 24th September onwards. Shadow indices, simulating the behaviour of the indices under the new rules, are already going to be published from 18th June onwards. The changes are based on the responses Deutsche Börse received from a survey of market participants.

In future, then, companies can be listed both in the TecDAX and in the DAX or else in the MDAX / SDAX. This is comparable to the situation in the USA, where corporations can be dual-listed, for example in the Nasdaq and S&P 500 indices. After the rule changes have been implemented, index membership is therefore going to provide a better reflection of the size of German stocks – large-cap (DAX), mid-cap (MDAX), small-cap (SDAX). In addition, the TecDAX will be upgraded due to the fact that bluechip German stocks such as Deutsche Telekom, Infineon and SAP can now also be included in the index. Imbalances will be limited by a maximum weighting per constituent.

We too regard the distinction between technology and “classic“ sectors as being no longer up-to-date. If it is borne in mind both that the MDAX and the SDAX are being expanded by a total of exactly 30 stocks (corresponding to the number of components in the TecDAX) and that the smallest stocks in the SDAX and TecDAX have a similar market capitalisation, most stocks which were previously part of one of the indices will still be part of an index after the changeover. Substitutions may occur in the case of the smallest-cap stocks. The smallest components in the TecDAX will undoubtedly drop out and be replaced by the three DAX heavyweights.

The companies which, to date, have been the biggest components in the TecDAX could well attract slightly more attention by being simultaneously listed in the MDAX from September onwards. This may raise demand and have a marginally positive impact on prices. The change in the rules ought not to have any repercussions on DAX stocks. Indeed, the new methodology is relatively unlikely to trigger major price movements in general.

 

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