Mid-cap MDAX index is star of German stock exchange

As 2012 draws to a close, the Frankfurt stock exchange's mid-cap MDAX index has been hitting record highs, reflecting the huge investor interest in Germany's small and medium-sized companies.

For the first time since it was set up 25 years ago, the MDAX index breached the psychologically important 12,000-point mark this week, while Frankfurt's blue-chip DAX index has failed to make a convincing break above 7,700 points.

When the stock exchange launched both stock indices in 1987, their starting levels were 1,000 points.

"Over these 25 years, the MDAX has mostly been in the lead," said Commerzbank stock analyst Achim Matzke.

"From a strategic point of view, the MDAX is the better investment," Matzke said.

The MDAX is made up of 50 mid-cap stocks, while the DAX comprises the shares of Germany's top 30 companies and its market capitalisation is four times as large as its smaller sister index.

Nevertheless, the MDAX has performed better than the DAX this year, rising 35 percent since the end of 2011, compared with 30 percent for the DAX.

Companies such as aerospace giant EADS, fashion retailer Hugo Boss and sports shoe maker Puma are among the best-known names on the MDAX. But most of the others are the lesser-known names of small and medium-sized companies that form the backbone of the German economy. And their share prices are soaring.

The price of shares in Duerr, for example, which specialises in products, systems and services for the automobile industry, has doubled over the past 12 months.

Shares in the machine-tool maker Gildemeister have risen in value by some 60 percent, while those in chemicals maker Brenntag have gained close to 40 percent.

"The MDAX represents the German economic model better than the DAX because it is essentially made up of companies in the three key sectors of automobiles, chemicals and machine-tools," said Matzke.

On the other hand, the MDAX, in contrast to the DAX, does not include companies in sectors such as energy or telecommunications whose shares have risen less sharply or even declined, the analyst said.

MDAX companies are also heavily export-orientated, generating the biggest part of their sales in countries outside the euro area, notably in emerging markets such as China, India or Brazil. And, given the long-running crisis in the 17 countries that share the euro, that is an asset.

"The attention on the German economic model and the so-called SMEs (small and medium-sized enterprises) has never been greater," said Hermann Simon, head of the corporate consultancy Simon-Kucher & Partners and author of a book on the strategies of success in the sector entitled "The Hidden Champions".

"More and more investors around the world are interested in German SMEs, some of which are in the MDAX index, and that is pushing up share prices," Simon said.

The interest does not appear to be mutual for now, however, with many family-run businesses reluctant to be listed on the stock exchange for fear of losing their independence, the expert noted.

According to a recent survey of 100 family-run firms in Germany by PricewaterhouseCoopers (PwC), only 7.0 percent said they were planning to sell share stakes or go public in the future.

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