Bullish on the German economy but not sure which individual companies to invest in? In this guide, we’ll examine the DAX index UK.
What is the DAX Index?
The DAX index tracks the value of 30 of the largest companies by market cap that trade on the Frankfurt Stock Exchange in Germany.
The index is dominated by giant German corporations like Volkswagen, Daimler, Allianz, Bayer, Deutsche Bank, Siemens and BMW. Because of this, the DAX is much more oriented toward traditional and so-called “old economy” sectors like car manufacturing, aviation and heavy industry. In that sense, it’s very different from the US stock indices like the S&P 500 and the Nasdaq, which are more technology heavy.
The DAX is very popular to trade, and as a result is highly liquid with tight spreads and long trading hours.
For any investors looking to have exposure to the fifth largest economy in the world and the largest one in the European Union, the DAX is a place to start. The index may only cover 30 companies, but it represents a huge swath of the German economy.
Another reason to invest in the DAX is to achieve diversification. If you are heavily invested in tech stocks through the S&P 500 and the Nasdaq indices in the US, the German DAX gives you exposure to automakers, heavy industrial companies, and financial stocks.
It’s also worth pointing out that Germany’s economy is in the midst of a transformation. European stocks are increasingly moving towards the tech sector, particularly after the COVID-19 pandemic. The DAX stands to be one of the major beneficiaries in the EU market in the years to come.