Volkswagen tops Toyota in market cap as hedge funds buy up stock

Volkswagen has overtaken Toyota as the world's largest carmaker by market capitalisation as hedge funds bet on a share price fall in the German company.

Volkswagen's shares surged 55 per cent to 452 euros today, the biggest intraday gain in over 9 years. The stock, however, closed two per cent lower in late trading.

The company is still worth more than Daimler, BMW, General Motors, Ford, Fiat, PSA Peugeot CitroŽn, Renault, Mitsubishi and Hyundai combined.

VW has a market capitalisation of €94.5 billion compared with Toyota's €92 billion (Y12,792 billion).

Traders, however, see the VW rise as a result of the market squeeze when hedge funds were forced to cover short positions. They attribute the short squeeze to the failure of Lehman, which lent Volkswagen shares to short-sellers.

When VW's stock started rising, traders and hedge funds scrambled to buy stock to minimise losses as the price rose above the level at which they had sold. These trades sell borrowed shares and then buy the equivalent position back later at lower prices before returning the stock to the lender. Hedge funds sell to conserve cash and for redemptions by their investors.

Volkswagen, the owner of the Audi brand, is up 84 per cent in 2008 and is Europe's best performer in the Dow Jones Stoxx 600 Index.