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SocGen downgrades European auto sector on Volkswagen woes

Michele Maatouk

LONDON (ShareCast) - (ShareCast News) - Societe Generale (Swiss: 519928.SW - news) downgraded the European auto sector to 'neutral' from 'overweight' on the back of the Volkswagen (Other OTC: VLKAF - news) emissions scandal. "After Volkswagen admitted that 11m vehicles around the world had been fitted with a device designed to cheat emissions tests, investors are likely to stay away from the automobile sector for a while (as they could be wondering which company might be next)," it said.

The bank said that even before the VW scandal hit, the sector was under pressure over the summer due to deteriorating emerging markets news flow, including news on China.

It (Other OTC: ITGL - news) said that even if it does not believe in a hard landing scenario for China, the stress remains.

On the upside, however, SocGen (Paris: FR0000130809 - news) said the European auto sector should continue to find some support from the European Central Bank's aggressive policy, further euro weakening, low oil prices and the Eurozone car market recovery.

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Finally, SocGen advised investors to stay away from the German DAX index.

"The downgrade to our automobile sector stance today is another reason to stay away from the German DAX, where the sector accounts for 17% of the index (only 6% in the Eurostoxx 50 and 5% in the CAC 40)."