Wednesday, August 12, 2020

Deutsche Börse must not be lenient with Lufthansa

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Lufthansa will soon be denied access to the Dax-30.

(Photo: AFP)

That too. As if Deutsche Lufthansa didn’t have enough problems, it now faces a rapid descent from the Dax.

In view of the price drop of more than 50 percent this year, the average market capitalization in April was only just under EUR 3.6 billion. Lufthansa has slipped to position 48 in the ranking of the most important German stock corporations on the German stock exchange.

If there is still no price miracle by the end of May, Lufthansa falls out of the leading German index in accordance with the “Fast Exit” rule of Deutsche Börse. According to calculations by the Commerzbank index experts, the hottest candidate for advancement is the real estate group Deutsche Wohnen.

If Lufthansa actually breaks the stock exchange index rule, Deutsche Börse knows no mercy. This may be surprising at first glance – after all, rules are being softened in rows in these bad corona times, for example for banks when lending, to at least relieve the stressed economy a little. For the same reason, governments and central banks around the world are spending trillions on aid and liquidity support.

Couldn’t Deutsche Börse be forgiving? After all, the prices of stocks that fall out of the Dax often fall further afterwards because investors who are closely oriented to indices then have to sell them. This applies especially to exchange-traded index funds. If the leading index declines, companies also get less attention from international investors, who primarily look at the Dax and not at small caps.

The stock exchange’s answer to this is “no” – and rightly so. Reliable index rules are important for investors, which is why the stock exchange introduced them over 15 years ago after consulting with institutional investors – and must adhere to them. Previously, the stock exchange had more discretion – and investors didn’t like that because of the lack of predictability.

Many fund managers have already prepared for Lufthansa to leave the Dax anyway. At least there are no negative surprises here – and that’s a good thing.

More: Lufthansa confirms negotiations on a rescue package worth nine billion euros

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