The fallout from Volkswagen's emissions scandal could hurt the wider German market for the next 18 months, Deutsche Bank has warned.
The German lender this morning cut its forecast for the Dax for both 2015 and 2016. It now expects the blue chip index to end this year at 10,300 points – 1,000 points lower than its previous forecast – while in 2016 it forecasts a year-close at 11,200, 900 points down on the previous estimate.
Deutsche Bank pointed the finger of blame squarely at Volkswagen, whose share price has fallen 39 per cent in the last two days amid claims the car giant inserted a device that enabled it to cheat on emissions tests worldwide.
Yesterday the company admitted as many as 11m cars may have to be recalled, and put €6.5bn aside to deal with the crisis. Chief executive Martin Winterkorn has come under increasing pressure to stand down, but so far has refused to tender his resignation.
As a result of Volkswagen's declines, the Dax has fallen to around 9,500 today, dropping from more than 10,500 two weeks ago.
Deutsche Bank said:
News flow around Volkswagen’s legal case on emissions in the US erased Dax Autos’ market cap by 15 per cent in just two days – obviously a huge head-wind to our current view on the Dax given the sector’s 35 per cent EPS and 25 per cent market capitalisation contribution to the German blue chips index.
DB analysts’ revisions to their Volkswagen EPS estimates imply a downgrade of our Dax year end 2015/year end 2016 index targets.
Drawing a parallel with Audi, the analysts added:
Audi’s case from 1987 (“sudden-acceleration incidents”) reveals that recovering from a lawsuit in the US can take up to 10-plus years before selling volumes reach previous peaks again. Back in the day Audi suffered a massive loss in reputation and this wasn’t even about cheating…
Volkswagen shares have accelerated further down, dipping below €100 having dropped eight per cent today.