Volkswagen has been removed from the Euro Stoxx 50 for the first time in 15 years, adding another challenge for the German carmaker as its shares trade near a 16-year low. The stock has fallen more than three-quarters from its 2021 peak, leaving Volkswagen with a market capitalisation of around €38bn against annual sales of €322bn. Its declining valuation reflects investor concerns over restructuring costs, weak Chinese demand and rising US tariffs, while the growing competitiveness of lower-cost Chinese manufacturers has added pressure to the wider European automotive industry.

The index removal could itself create further downward pressure on Volkswagen’s shares through passive investment flows. Stoxx estimates that 30 exchange-traded funds with a combined market value of €59bn track the Euro Stoxx 50, meaning some funds will have to sell Volkswagen to replicate the revised index. More than 110,000 structured products with sales volumes exceeding €68bn are also linked to the benchmark. While these flows do not change Volkswagen’s underlying financial performance, HSBC senior global autos analyst Michael Tyndall said the sector faces “seemingly existential risks”, while portfolio manager Simon Jäger argued that Volkswagen’s €38bn valuation sends a clear signal of investor scepticism.

The index exit also highlights the broader difficulties facing Germany’s industrial champions. Volkswagen is planning 100,000 job cuts as part of its restructuring, while sales in China have weakened and a €6bn write-down on its Porsche stake contributed to a recent profit warning. Although Volkswagen says its transformation should improve financial performance and eventually support a return to the Euro Stoxx 50, its removal demonstrates how deteriorating fundamentals can interact with market structure. For investors, the episode shows that falling valuations can have consequences beyond sentiment, as index exclusion can trigger mechanical selling and amplify an existing decline.

- Muthu Ramanathan

The UK government’s fiscal headroom has been cut by more than half to £11.6bn, according to KPMG analysis, as weaker growth and rising borrowing costs increase pressure on Chancellor John Healey ahead of the October 28 budget. The buffer has fallen from £23.6bn at the spring statement, with government borrowing costs reaching their highest levels since 2007. KPMG chief economist Yael Selfin said restoring the previous level of headroom could require tax rises or spending reductions, highlighting the increasingly limited room for manoeuvre within the government’s fiscal rules.

Higher interest-rate expectations are a particular threat to the government’s finances because they increase the cost of servicing public debt. Deutsche Bank estimates that market expectations for interest rates are now around 1 percentage point higher than in the spring, potentially adding £13bn to long-term borrowing costs. Inflation, which is expected to reach 4% early next year, could add another £2bn, while the Institute for Fiscal Studies estimates that lower future migration could increase borrowing costs by a further £1bn to £5bn by 2031-32. These pressures could leave the government with as little as £8.5bn of headroom under Deutsche Bank’s calculations.

The deterioration comes despite signs that the economy has performed better than expected in the short term. GDP grew by 0.4% in July, while KPMG forecasts annual growth of 1.3% this year and 1.4% in 2027. However, Selfin warned that rising energy bills and slower wage growth are likely to weaken household spending, while the longer-term slowdown in labour-force growth makes productivity-enhancing investment increasingly important. With markets pricing four Bank of England rate rises over the next year, the government faces a narrower fiscal buffer just as higher borrowing costs threaten to constrain both tax and spending decisions. The episode illustrates how fiscal credibility increasingly depends not only on controlling spending, but also on sustaining growth and keeping the cost of government borrowing under control.

- Neev Dave

Novo Nordisk faces a crucial test of its strategy as competition in the rapidly expanding weight-loss drug market intensifies. The Danish pharmaceutical company was the first to launch an oral version of its blockbuster Wegovy treatment in January, but US rival Eli Lilly has already captured more than 30% of new patients in the US oral obesity market with its recently launched Foundayo. Novo’s shares have fallen about 16% this year and now trade at less than a third of their 2024 peak, reflecting growing investor concerns over its ability to sustain the growth that made it Europe’s most valuable listed company in 2023.

The pressure extends beyond competition. Around $35bn of Novo’s sales are due to lose patent protection between 2032 and 2034, while disappointing results from pipeline treatments such as Cagrisema and ziltivekimab have heightened concerns about the company’s dependence on obesity and diabetes products. Novo has responded with a restructuring involving around 9,000 job cuts, while new CEO Mike Doustdar has signalled a willingness to pursue large acquisitions. UBS estimates that the company has around $47bn of M&A capacity, giving Novo significant financial firepower to diversify its pipeline and reduce reliance on semaglutide before the patent cliff arrives.

Deal-making could therefore become an important part of Novo’s strategy alongside developing its internal pipeline. Doustdar has said he would not shy away from large acquisitions, including deals larger than Pfizer’s $10bn acquisition of Metsera, potentially allowing Novo to acquire established obesity treatments or complementary technologies rather than waiting for its own pipeline to mature. BMO Capital Markets analysts said the company must provide measurable objectives across obesity, diabetes, rare disease and capital deployment, while GlobalData senior pharma analyst Jay Patel highlighted Lilly’s potential cost and efficacy advantages. For Novo, the challenge is therefore not simply defending Wegovy’s market share, but deploying its balance sheet effectively to build the next generation of growth.

- Muthu Ramanathan

Reducing carbon emissions: Blackstone runs a Decarbonisation Accelerator to help companies in its investment portfolio reduce emissions. The programme supports them in measuring their emissions, setting reduction targets, improving energy efficiency and using renewable energy. Moreover, the firm invests in businesses focused on the energy transition, aiming to reduce environmental harm while helping companies lower energy costs and become more competitive. This shows that environmental progress is part of Blackstone’s investment strategy, rather than just a separate responsibility programme.

Supporting education and careers: The Blackstone Charitable Foundation supports career and economic mobility. Its Blackstone LaunchPad programme helps students from low-income backgrounds, and those who are the first in their families to attend university, develop professional skills and find paid internships. Blackstone also runs Blackstone Connects, which supports community organisations through employee volunteering and donations. These programmes aim to reduce unequal access to education, work experience and career opportunities.

Morgan Stanley deal: In January 2026, Blackstone’s energy-transition investment business acquired Alliance Technical Group (ATG) from Morgan Stanley Capital Partners. ATG provides emissions testing, environmental monitoring, compliance advice and pollution-control services across North America. The deal is closely linked to ESG because ATG helps companies measure pollution and meet environmental rules. It also supports Blackstone’s wider strategy of investing in businesses that benefit from the shift towards cleaner energy and stronger environmental standards.

Until next time,

The Long and Short

Markets, Made Sense