The Spanish bourse was the worst performer in Europe in 2015. But it is not yet ready for a rally. According to influential Anglo Saxon newspapers there are some extremely negative and toxic elements in Spain with regard to regulated sectors following the December 20 elections. These could affect the risk premium and the risk-free rate etc, with the consequence negative impact on companies’ WACC and valuations.
Spanish banks’ market capitalisation is still in the doldrums. Six of the seven lenders listed on the Ibex 35 occupied the top positions in the ranking of European banks with the worst stock market performance in 2015. And investors are continuing to punish Spain’s banking sector at the start of 2016. Analysts agree that profitability is the problem for Spanish banks. And, as the Bank of Spain insists, one solution could be a new wave of mergers, which would probably affect the mid-sized lenders.
A last-ditch attempt on the part of separatist parties has brokered a deal for a new government in Catalonia. It came just in time, as the clock was ticking on new regional elections. The agreement forced incumbent President Mr Mas to step down, meeting the stone wall prerequisite imposed by the far-left CUP movement for providing its support. However he secured the job for a second-ranking member of his own party, thus keeping a firm grip on the political agenda.
BARCLAYS | 2015 was a surprisingly strong year for the Spanish labour market. Social security affiliations increased by 533k while the number of unemployed fell by 354k, according to figures released by the Ministry of Employment. December delivered another sizeable drop of 55.8k in registered unemployment and an increase of 85.3k in social security affiliations relative to November.
The global economy in general, and the Spanish economy in particular, are experiencing turbulent times. China, the emerging markets, raw materials, the weak recovery, inflation or exchange rates are entangled with the domestic problems of each individual country. In Spain, these are focused on a political map with a lot of question marks and a worrying level of private debt, which Abengoa’s crisis has accentuated.
In the corporate world, size is also important. One of the areas still pending reform in Spain, and one of the economy’s biggest weaknesses, is the size of companies. According to studies published by groups like the Circulo de Empresarios (Circle of Entrepreneurs) or research institution Fedea, Spain’s GDP would grow 13-15% if the average size of its companies was closer to that of neighbouring countries like Germany or the UK.
JM Martí Font via Macropolis | Spain is not Portugal, although we cannot completely rule it out. Brussels and Frankfurt want Spain to look like Germany. A grosse coalition will reassure the markets, guarantee the prevalence of budgetary orthodoxy and, on the surface, maintain at least the status quo, something very important to the European institutions, the financial powers and the European political class who doesn’t like changes.
Spain has been on a kind of roller coaster ride in 2015, lurching between good and bad news. There was a lot of the first, but it seems not quite good enough to please and impress Spaniards, if the outcome of the general elections is anything to go by. Unless the Socialist ‘barones’ (the regional bosses) can persuade PSOE leader Pedro Sanchez to give the PP a chance to form a new government with the backing of Ciudadanos, there could be worse to come.
Emilio Ontiveros | The Spanish economy grew more than its European counterparts and current tailwinds such as low oil prices also favour it over the rest of the member states. But the country still has a lot to do to become a major league player.
The Spanish Socialist Party is under heavy pressure in the aftermath of the general elections. The extremist Podemos movement nearly ousted it as the leader of left-wing sentiment. But neither can it support the ruling Partido Popular right away, nor risk blocking the forming of a new government and provoking another round of elections. It would pay a high price if it embarked on such a course of action.