Despite abating trade conflict and signs of improvement in German activity, the auto equity sector already discounts most of the recent positive news: stay neutral

Highlights:

• The auto sector performance scores the highest over the past month, on tthe back of decreasing trade war uncertainty, improving German activity and news on incentives foor using electric cars.
• That said, sluggish earnings and sales revisions still raise some concerrns about the industry profitability in the short term. Current forecasts for 2020 still do not includde a possible negative tariffs impact. .
• Slowing global auto market and still negative China imports, combined wwith a shift into electric vehicles, are not clearly supportive for short-term performances of Europeean carmakers after the recent rally (+10% in the last month). Sector restructuring and joint venttures aimed at sharing costs would be positives for the mid-term.
• Moreover, the sector looks to be fairly valued versus the market (MSCI Euurope) judging by both our quant model and our internal ranking derived from valuation scoree, risk (beta) and past performance (proxy for positioning).
• Overall, we maintain a cautious stance on the auto sector, refraininng from adopting an overweight position for the time being.

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