Morgan Stanley’s chief stock markets’ strategist, Graham Secker, said this week in London that the uncertainty over Catalonia which has weighed on Spain’s performance has meant that the MSCI Spain has underperformed the EMU by 8% since August. And Spanish SMEs have underperformed by 13%. Whatsmore, Spain is the cheapest country in the market index of listed SMEs in the whole of Europe. That said, he also highlighted a reason for betting on the Spanish market by saying it has had the fourth best EPS growth examples.
Amongst the stocks which Morgan Stanley has on its buy list in Spain and is recommending are: Iberdrola, Merlin Properties, Repsol and Cellnex.
Secker also believes that Spain’s bourse is very interesting for investors, because the impact in the medium-long term of the situation in Catalonia will not be too pronounced. Furthermore, while other European markets like France and Germany have performed very well in the last few months, the peripheral markets have done worse. As a result, the Ibex 35 is the investment bank’s preferred stock market in the Eurozone for the start of 2018. It could offer returns in excess of the 6% forecast for the MSCI Europe.
Another economist from Morgan Stanley, Daniele Antonucci, also believes that the impact of the crisis in Catalonia is limited. In another report written by him, he lowers his GDP growth estimates for 2017 from 3.2% to 3.1% and for 2018 from 2.7% to 2.5%. But he acknowledges that if the situation in Catalonia turns more negative, with the secessionists winning the majority and once again challenging the law, the impact would be pretty serious given that the fiscal adjustment in Spain is still only half way there. Spain has not yet been able to post a current account surplus. And the fiscal adjustment has been mainly cyclical.
As a result, the possibility of continuing to cut debt is conditional on having strong economic growth. This situation has meant that the uncertainty in Catalonia has weighed heavily on ratings agencies S&P and Fitch. This has led them to improve their rating to BBB+ with a positive outlook.
And so Spain is risking a lot on December 21.