Deutsche Bank | The Ibex trades at a significant discount to other European indices, with a 12-month PER (Price Earning Ratio) of 14x, compared to 16.2x for the Eurostoxx. The high weight of the financial and electricity sectors also means that the Spanish selective index has a particularly attractive 12-month expected dividend yield of over 5%, against the Eurostoxx’s 3.9%.
Until the end of 2023, the selective Ibex index had a worse relative performance than most of the major European indices. However, this situation has changed in 2024. At the end of May, the Ibex had more than 10.8% gains in 2024 and was thus in second place among the major European indices, surpassed only by the Italian MIB (+11.8%). The crisis resulting from the outcome of the European elections and the subsequent call for legislative elections in France also took its toll on the selective Ibex, which is once again very close to 11,000 points.
Although the banking sector has been one of the most affected by the recent volatility, the fact is that this year a large part of the Ibex’s gains are due to this sector, at the end of May, one of the best performers in 2024 (Eurostoxx Banks index: +27%), with a strong overweight in the Ibex compared to its European peers (31% vs. 20% of the Eurostoxx). Despite recent falls and expectations of a rate cut, the sector’s fundamentals remain very positive. In the case of Spanish banks, earnings in the first quarter of the year rose by an average of 17% year-on-year.
In addition to the banking sector, energy and telecommunications are the other two dominant sectors on the Ibex. The electricity and gas sector has a weight of 19% in the Ibex and only 3.5% in the pan-European index. The poor performance of defensive stocks (such as electricity companies) would therefore explain the poorer performance of the Ibex in 2023. Nor should we forget the regulatory and tax changes, embodied in the approval by the Spanish government at the end of 2022 of a new tax on the profits of banks and electricity companies, a tax that supposedly was to be in force for two years, but which is likely to remain in force for some time.
Finally, a differentiating factor of the Spanish market is its strong exposure to Latin America. Overall, Ibex 35 companies obtain 30% of their revenues and 25% of their profits in Latin America.
Looking ahead to the second half of the year, these regional and sectoral differences should support the Spanish equity market. The outlook for the financial sector is favourable, thanks to the strength of the economy, the stability of spreads (lower interest rates would be offset by higher economic activity), the low volume of defaults (and therefore lower provisions) and a more favourable global economic environment in the latter part of the year (including Latin America).
