Goldman: Spain Successfully Done its Structural Reforms; We Recommend Overweight on its Equity

Weir made these comments while presenting Goldman’ latest report on the bank’s 2014 outlook: Within Sight of the Summit.

The ISG turned bullish on Spanish Ibex 35 in “August last year”, and did that ahead of the curve, when other were bearish on Spain. Their reasoning? Yes, the banking system is very, very large, about 42% of the Spanish equity market, but it has been recapitalized, they reckon. “Their financial sector has stabilized”.

In addition to that, even if “from a cyclical perspective the unemployment rate is still very high,” you have reasons to believe: “the leading indicators suggesting that Spanish economy, along with European economy, is coming out of recession”.

The third factor: “we saw a couple of things that were giving us confidence suggesting that Spain is, in fact, accomplishing a structural reform: if you look at unit labor cost for Spanish economy, they have been relatively flat over the last few years; and more interestingly, Spain has defended its shared of European exports and the global export market more successfully than other European economies.”

Are they recommending to sell northern European countries equities to enter into the Spanish “bolsa”. No that fast: “its not a rotation out of northern Europe into Spain per se,”  just get rid of some German or American bonds and get a nice return on Madrid’s stocks.

The ISG is responsible for investing big sums of money, “over 10 million dollars”, normally institutional investors or very wealthy people.

They also advice to stay the course on US equity, even if they struggle to convince skeptic investors who believe we are already hitting the summit. SP500 hit yet another intra day record, and closed at 1850 points. Is the bullish market going to end soon? “Bulls don’t die out of exhaustion; they need a cause”, and they do not see any: the Fed is tapering, not tightening.

About the Author

Ana Fuentes
Columnist for El País and a contributor to SER (Sociedad Española de Radiodifusión), was the first editor-in-chief of The Corner. Currently based in Madrid, she has been a correspondent in New York, Beijing and Paris for several international media outlets such as Prisa Radio, Radio Netherlands or CNN en español. Ana holds a degree in Journalism from the Complutense University in Madrid and the Sorbonne University in Paris, and a Master's in Journalism from Spanish newspaper El País.

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