Shares in Volkswagen have hit incredible heights as Porsche prepares to take over Europe's biggest carmaker because speculators who bet the auto stock would slump have been burned, analysts say.
Bloomberg reports that the German car maker is now the world"s biggest company by market value, beating the oil giant Exxon Mobil. after Porsche announced plans to raise its stake in the German carmaker to 75%, triggering demand from short-sellers.
VW shares spiked by 93.27% to â‚¬1 005.01 in early morning trading on the Frankfurt stock exchange Tuesday in an ongoing reaction to details from Porsche on how it planned to take over the company.
The shares later tumbled back to â‚¬645.58 in midday trading, but still showed a gain of 24.15%.
The Dax index of leading shares was up by 6.30% at 4 607.66 points, but more than half of the other issues were in negative territory.
Speculators have targeted VW with short selling, basically a bet that a share's price will fall. They are now obliged to buy shares at much higher prices to cover those they had borrowed initially since the stock rose instead.
"What we have seen this week is definitely short selling,' UniCredit equity analyst Christian Aust told AFP.
'Nobody else would buy Volkswagen shares at those prices. It doesn't make any sense.'
He suggested the buyers included hedge funds and banks' proprietary desks, which manage the financial institution's own stock positions, but added that it was not completely clear.
Fellow UniCredit analyst Tammo Greetfeld said: 'One can guess that hedge funds are among them because they are the usual suspects in this kind of business, but to my knowledge one does not know.'
On Sunday, Porsche said it controlled 74.1% of the shares in VW, via a 42.6% direct equity stake and options giving it another 31.5%.
Porsche said it aimed to increase its direct stake to over 50% by the end of the year, 'provided that economic conditions allow'.
As Greetfeld noted: 'That put pressure on investors who have sold this stock short.'
On Monday, VW shares were up more than 200% at one point, and ended the day with a gain of more than 150%, pulling the entire Dax index into positive territory in the process.
Because a small percentage of VW shares float freely, they can be subjected to strong movements by the sale or purchase of relatively small amounts, dealers say.
Aust said that with Porsche controlling 75.1% of VW and the German state of lower Saxony owning 20.1%, 'the real free float, what is really available, should already be less than six percent.'
Dow Jones Newswires quoted a Frankfurt trader on Monday who compared the situation to a game of musical chairs.
'There are too few chairs for the players,' he said.
A spokesperson for the Frankfurt stock market told AFP there was currently no reason to suspend trading in VW shares despite what Greetfeld called 'such an extraordinary move' in their value.
Such an action 'is only possible in cases where a major stock market statement has been published,' or if the amount of free-floating capital drops below five percent, the spokesperson said.
'In the case of Volkswagen, there has been no breach of market rules, therefore no reason to suspend quotations,' he added.
Aust said that 'what is astonishing is that there is still so much volume.' - Sapa-AFP and Fin24.com