DAX

Large companies like Siemens or BMW are jointly owned by many people. Anyone who buys a share in such a company owns a stock. The price of these shares fluctuates every day because people are constantly buying and selling. The DAX combines the prices of the shares of 40 particularly large German companies into a single number. This number alone says little, but its change says a lot: if it rises by one percent, these 40 companies became, on average, one percent more valuable that day. The DAX is thus a kind of fever thermometer for the country’s largest companies.

What a DAX level reveals about the economy

The DAX is the best-known figure in the German economy. It runs alongside news broadcasts, often several times a day. The reason is simple: it is one of the few indicators that changes every second. The unemployment rate or economic growth are only published every few months.

The price mainly reflects expectations. Investors buy shares when they believe a company will earn more in the future. That’s why the DAX reacts to news before its consequences even reach the real economy. An announced tariff dispute can immediately push the index down, even though not a single product has become more expensive yet.

However, one should not confuse the DAX with the German economy. The 40 corporations do a large part of their business abroad. Small and medium-sized businesses, which employ most people in Germany, don’t appear in the index at all. A rising DAX therefore doesn’t automatically mean that the country is doing well.

How 40 share prices become one number

The DAX is a weighted average. Large companies count more than small ones. What matters is market capitalization: the number of shares times their price. A heavyweight like SAP can move the index much more strongly than a smaller member. To prevent any single corporation from dominating everything, a company’s share is capped at 15 percent.

The starting point was December 31, 1987, with a value of 1,000. A DAX level of 20,000 roughly means: the shares of these companies are worth about twenty times as much as they were back then. The index is calculated by Deutsche Börse, every second during trading hours.

One peculiarity often causes confusion. The DAX is a performance index: it factors in dividends, meaning the profit shares that companies pay out to their owners. Most foreign indices do not do this. That’s why the DAX looks better in long-term comparisons than it would if calculated the same way as others. Anyone making an international comparison should refer to the DAX price index, which does not include dividends.

From the news ticker to the savings plan

Most commonly, one encounters the DAX in reports like: “The DAX closed 0.8 percent lower.” Such daily movements are usually meaningless. Things get interesting with larger swings, for example after interest rate decisions by the European Central Bank or surprising quarterly results from individual corporations.

You can also invest directly in the DAX through so-called ETFs. These are funds that simply buy all 40 stocks in the correct proportion and replicate the index. Many savings plans work this way. Anyone who pays into a DAX ETF every month automatically spreads their money across 40 companies instead of betting on a single firm.

The composition changes regularly. Until 2021, the index included only 30 stocks; since then it has been 40. Deutsche Börse decides who is newly admitted and who drops out based on fixed rules regarding size and trading volume. For a company, being promoted is also a prestige gain, since many funds replicate the index and are then automatically required to buy the stock.