DAX Stock Index: An Introduction
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The DAX, or Deutscher Aktien Index 40, is a pivotal benchmark for the German stock market, tracking the performance of the 40 largest and most actively traded German companies. Introduced on July 1, 1988, the DAX has served as a barometer for Germany's equity market over the past 36 years, reflecting both domestic and global economic events.
The DAX is computed using the free-float methodology, which considers only the readily available shares, excluding those that are untradable, such as shares owned by governments. The index is weighted by market capitalization, meaning companies with higher market caps have a greater influence on its value. Each company in the DAX can have a maximum weight of 10%.
Since its inception, the DAX has mirrored significant economic events, including the tech bubble in 2000, the lows in 2003, and the global financial crisis in 2008. It also plummeted during the COVID-19 pandemic. Despite these fluctuations, the DAX has yielded a compound annual return of 8% including dividends, resulting in a total return of 1,575% over its 36-year history.
In recent times, the DAX has shown robust performance. Since November 2023, the index has gained 20%, surpassing the 16,500-point mark, a level last seen in early August 2023. This surge is attributed to strong performances from companies like Infineon Technologies AG, Siemens Energy AG, and Sartorius. As of the end of 2023 and the beginning of 2024, 26 out of the 40 companies in the DAX were performing well, indicating a broad-based rally.
Looking ahead, forecasts suggest that the DAX could continue its upward trend. Experts predict the index to reach around 17,500 points by the end of 2024, provided it remains above the 16,800-point support level. Long-term predictions indicate a potential break above the 20,000-point mark in the coming years, although periodic downturns are expected.
The DAX's performance and its derivatives, including futures and options, make it a key instrument for investors seeking exposure to Germany's economy, which is Europe's largest. The index's stability and the broader range of sectors it covers since its expansion from DAX 30 to DAX 40 in September 2021 have further solidified its importance in global financial markets.