Europe midday: Equities drop as auto stocks skid on Volkswagen emissions scandal

LONDON (ShareCast) - (ShareCast News) - European equity markets fell sharply, with auto stocks pacing the decline as Volkswagen (Other OTC: VLKAF - news) 's emissions scandal weighed on the broader sector. At midday, the benchmark Stoxx Europe 600 index was down 2.5%, France's CAC 40 was 3% weaker and Germany's DAX was down 2.7%.

The Stoxx Europe 600 autos and parts index slumped a whopping 7.3%, dragged down by Volkswagen (Xetra: 766400 - news) , which tumbled for the second day in a row as the German car maker said it will set aside €6.5bn to pay for the emissions crisis. Also on Tuesday, it emerged that the South Korean government will investigate three of the German car maker's diesel models.

The stock dropped over 20% on Monday after the company told US dealers to halt sales of some of its 2015 diesel cars after regulators found that some of its vehicles gave false emissions data, disguising pollution levels.

Among individual stocks in the sector, Audi (Other OTC: AUDVF - news) skidded 12.4%, Renault (Swiss: RNO.SW - news) slid 8.3%, Daimler (Xetra: 710000 - news) fell 7.7%, and BMW (Swiss: BMW.SW - news) was 6.1% weaker.

"The wheels have fallen off for Volkswagen whose shares continue to tumble in the wake of yesterday's scandal which saw the German car manufacturer admit to fixing its emissions tests in the US markets," said Joshua Mahony, market analyst at IG (LSE: IGG.L - news) .

"The issue here is one of reputation and coming from a rich pool of reputable and reliable German carmakers, this could take the sheen off a previously untouchable industry. Today's selloff across the German automotive sector has seen competitors such as Audi, Renault, Daimler and Porsche all suffer major losses today. The question on everyone's mind is, if Volkswagen is doing it, the likeliness is that they all are. This guilt by association will persist until those companies intervene." Pharmaceutical stocks were also on the back foot, tracking losses in the US after Democratic presidential candidate Hillary Clinton said on Monday that she plans to take on "price gouging" in the industry.

The Stoxx 600 healthcare index slumped 2.5%. In London, Shire (Amsterdam: QB8.AS - news) , GlaxoSmithKline (Other OTC: GLAXF - news) and AstraZeneca (NYSE: AZN - news) were among the worst performers on the FTSE 100.

Shares (Berlin: DI6.BE - news) in miner BHP Billiton (NYSE: BBL - news) dropped after it said it will undertake a global debt investor marketing effort across Europe, Asia and the US from 28 September as it considers raising new funds for general corporate purposes, including refinancing existing near-term debt maturities. The company said that subject to market conditions, it may consider the issuance of multi-currency hybrid capital instruments to institutional debt investors.

Fellow miners Anglo American (LSE: AAL.L - news) and Antofagasta (Other OTC: ANFGF - news) were also on the back foot after Credit Suisse (Other OTC: CDSSF - news) downgraded its ratings on the stocks.

The economic calendar is pretty light, but Eurozone consumer confidence is due at 1500 BST.