With a market capitalization of around 23 billion euros, Siemens Energy will rank ahead of the electricity suppliers E.ON and RWE and will be one of the 20 largest stocks in the index. The inclusion in the DAX is particularly important when you consider that more than half of the DAX shares are in foreign hands. According to a study by the consulting firm Ernst & Young from the summer of 2019, 55 percent of DAX shares can be assigned to foreign investors. On the German stock market, they are primarily targeting the blue chips, i.e. the DAX stocks.
However, there are also specific purchases associated with inclusion in the German benchmark index: ETFs (Exchange Traded Funds), which replicate the DAX one-to-one, usually acquire the shares according to their weighting in the index. Billions are invested in these exchange-traded index funds. In addition, the DAX serves as the basis for many other investments, for example for futures contracts or as a benchmark for measuring performance. In addition to being included in the German benchmark index, Siemens Energy shares also inspire the hydrogen imagination. In the future, the group no longer wants to participate in new coal-fired power plant projects, but is increasingly focusing on renewable energies. At the beginning of February, the company signed a cooperation agreement with the French gas manufacturer Air Liquide to jointly develop large hydrogen projects with industrial customers. Among other things, an offshore wind turbine that produces hydrogen is to be developed with the subsidiary Siemens Gamesa. Siemens Energy is also likely to receive a share of the billions in subsidies that Brussels wants to distribute for hydrogen projects. Because at least 37 percent of the funds from the 672.5 billion euros of the Corona aid package Recovery and Resilience Facility of the European Union must flow into climate protection – a significant part of which goes into hydrogen projects.
Despite the increasing global demand for energy, Siemens Energy’s strong market position, a stronger focus on renewable energies and DAX membership, investors should bear in mind that the industry is under high competitive pressure, profitability is weak and the switch to alternative energies poses major challenges brings. Around 73 percent of the 92,000 Siemens Energy employees are employed in the conventional energy generation (gas & power) sector. In order to reduce costs and increase profitability, the group plans to cut a further 7800 jobs in a third round of layoffs by 2025.
In the long term, this, like the inclusion in the DAX, has a positive effect. In the short term, a lot is likely to have been anticipated in the prices, as investors anticipate higher prices from index newcomers weeks and months before the official changeover date. Reverse convertibles appear to be an investment alternative in this environment, because their construction offers a buffer against price losses and at the same time a fixed interest coupon, ideal for an environment where prices tend to stagnate or only rise moderately.
5.00 percent pa fixed rate and 20 percent bullet buffer after one year
The DekaBank 5.00% Siemens Energy Reverse Convertible 04/2022 (WKN DK0Z4V) pays a fixed interest rate of 5.00% pa based on the nominal amount (1,000.00 euros) when due after one year. In order for the repayment to be made at the nominal amount, the Siemens Energy share must close at least at or above the base price (80.00 percent of the starting value) on the valuation date (April 7th, 2022).
Otherwise, there is a risk of losses on repayment, as Siemens Energy shares that have fallen in value are transferred to the investor at 80% of the starting value instead of the nominal amount. In addition, the reverse convertible, like any bond, is subject to the issuer risk as a whole. Accordingly, in the event of DekaBank’s insolvency, there would be a risk of losses up to and including the total loss of the nominal amount invested.
The subscription runs from March 22, 2021 to April 9, 2021, subject to an extension or shortening.
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As Head of Private Banking and Product Management at the Deka Group, Hussam Masri is responsible for product development and product management of mutual securities funds, asset management and pension products, certificates and private banking.