Broker snap: UBS downgrades European pharma to neutral

UBS Investment Research cut its rating on the European pharmaceutical sector to "neutral" from "small overweight," saying the defensive sector that benefited from the economic soft patch and the sovereign debt crisis, will be hit by the turnaround in these lead indicators. UBS strategist Nick Nelson notes that there are "tentative signs that the soft patch in the global economy are coming to an end" and added, "The (pharma sector) has been a top-performer against the backdrop of sharp falls in economic lead indicators and a rapid deterioration in the sovereign crisis. We see it unlikely that these events will occur again over the next 4 months."The UBS note highlighted that the pharmaceutical sector, which had gained about 13%, is one of the most economically defensive sectors and the second most inversely correlated to sovereign risk in Europe.Shares of AstraZeneca, which have risen nearly 5% year-to-date, fell 0.9% to 3,063p on Friday afternoon, while GlaxoSmithKline's shares, which have added nearly 8% for the same period, slipped 0.1% to 1,338p in London. French drugmaker Sanofi was marginally higher 0.2% at €55 in Paris.However, the broker said its rating on pharma is not at underweight as it sees reasonable valuations with the dividend yield relative to the market being 105% - close to a decade-high, and the sector benefiting from emerging markets. UBS also upgraded the paper sector to "neutral" from "underweight" as there are some signs of consolidation in the worst performing sector within the 30 European sectors, since the lead indicator rolled over.AR