Germany is Europe’s largest economy, and the DAX is the index most traders use to gauge how its biggest companies are doing. It often moves in step with the FTSE 100, but not always, and the differences can be revealing. Here is what the DAX is, how it is built and what tends to move it.
What the DAX is
The DAX tracks 40 of the largest and most actively traded companies listed on the Frankfurt Stock Exchange. It was launched in 1988 with 30 members and expanded to 40 in 2021. Members include household names in cars, chemicals, software, insurance, industrial engineering and healthcare. Companies are weighted by the value of their freely tradable shares, so the largest have the biggest influence, and there are caps to stop any single company dominating.
The index is reviewed regularly, with companies added or removed based on size and trading activity, much like the FTSE 100.
A key difference: total return
The main DAX is a performance index, which means it assumes dividends paid by its companies are reinvested. Most major indices, including the FTSE 100 and the S&P 500, are price indices, which do not include dividends. That makes the DAX look stronger over long periods when you compare headline levels, so it is worth keeping in mind when you compare performance. A separate price version of the index also exists.
What moves the DAX
Global trade. Germany is a major exporter of cars, machinery and chemicals, so the DAX is sensitive to demand from China and the US, and to tariffs. Trade tensions tend to hit it harder than more domestic markets.
Energy prices. German industry uses a lot of energy, much of it from gas. Spikes in European gas prices can squeeze margins for chemicals and manufacturing. Our guide to TTF natural gas covers the European benchmark.
ECB policy and bond yields. The European Central Bank sets interest rates for the euro area, and rate expectations affect company borrowing costs and valuations. German government bond yields, known as Bund yields, are the eurozone’s benchmark.
The euro. A weaker euro can help exporters’ earnings, while a stronger euro can weigh on them. Our explainer on how a weak euro affects European exporters goes into this.
Business surveys. German data such as the Ifo business climate index, the ZEW investor survey and factory orders can move the index, as they offer early signals on the economy.
DAX versus FTSE 100
The two indices often move together because they react to the same global news. But their make-up differs. The FTSE 100 leans heavily towards oil, mining, banks and consumer staples, and earns a lot of revenue overseas in dollars. The DAX has more industrial, car and technology exposure. So a rise in oil prices might help London relative to Frankfurt, while a strong day for software or carmakers might do the opposite.
Trading hours and how people trade it
Cash trading on the Frankfurt exchange runs from 9am to 5.30pm Central European Time, which is 8am to 4.30pm in the UK. DAX futures trade for much longer hours, and many brokers offer index products based on them, which is why you may see a DAX price quoted early in the morning or late at night.
The bottom line
The DAX is Germany’s blue-chip benchmark and a useful read on European industry, trade and energy costs. Knowing what drives it helps you understand why it sometimes diverges from London. If you want to sharpen how you read and trade the major indices, take the free Samuel & Co Trading Trader Assessment.
