Shares in Europe’s largest carmaker Volkswagen and its French rival Renault dropped sharply Friday after UBS analysts recommended investors dump the stocks, citing the growing threat to their business from Chinese competitors.
Volkswagen was down 4.4% in late afternoon trade in Europe and Renault 5.6% lower, while the benchmark STOXX Europe 600 index was flat. On Thursday, analysts at Swiss bank UBS downgraded their recommendation on both stocks to “sell” from “neutral.” “We believe it unlikely VW can weather the upcoming Chinese advance without negative earnings impact,” Patrick Hummel, David Lesne and Juan Perez-Carrascosa wrote in a research note.
A research paper published last month found that such ratings made up only 9% of all recommendations on average, while “strong buy” and “buy” ratings represented 46%. The findings are in line with previous studies on “optimism” among so-called sell-side analysts, the authors wrote. One such study, published in The Accounting Review in 2013, says it found “direct evidence” that big investors pressure sell-side analysts to publish upbeat opinions to support their investments in particular stocks.
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