Mystery Volkswagen Share Rally; Shares Hit 20-year High in Frankfurt

John Horner
by John Horner

While global stock markets are in full retreat, Volkswagen shares have soared to a 20-year high. Marketwatch has plenty of theories to explain the recent 60 percent surge: short covering, inclusion in market indices and the relatively small number of VW’s shares which trade on the open market. Even the collapse of Lehman Brothers gets an honorable mention. Whatever the reasons, “with a market capitalization of 95 billion euros, or $129b, VW is now worth more than Toyota.” Surely the big rise in VW shares has nothing to do with the company’s ongoing inability to get anything right in the U.S .market. VW’s US sales were down 9.4 percent in September and would have been even worse were it not for the introduction of the Jetta SportWagon and the Tiguan. The best explanation for the recent VW share price run-up: the tug of war between Porsche, the state of Lower Saxony and various factions within VW’s management and a related squeeze on short sellers who had bet that VW would crater along with the rest of the automotive stocks. Barron’s summed-up the situation up nicely today with this note: “Holding VW shares can be likened to musical chairs. Each time the music stops, some of the shorts cover and drop out. At some point, relatively soon, the shorts will be out effectively of the stock, and VW shares will start trading on fundamentals again. When that happens, the game will be over, and holders of VW shares will be left standing with shares that will plummet to where fundamentals dictate.” So, if you are a betting person, short some VW stock and wait for it to unfold. Me, I’ll be watching from the sidelines.

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