Why Spain outperforms other developed markets

Why Spain outperforms other developed markets (Part 1 of 8)

Why Spanish equities changed from laggard to leader

Is now the time to go long Spain?

After trailing other developed markets for the last five years, Spanish stocks have been the clear winner in the last six months. In this series, I’ll walk through the country’s economic data to investigate the drivers of this outperformance.

There are eight factors that investors should consider when analyzing a country’s economic situation: growth, unemployment and wages, consumer confidence and spending, industrial production, inflation, asset prices, fiscal and monetary policy, and credit and banking. All of these factors are important and influence equity performance.

2013 10 17 spain1Enlarge Graph

Spanish equities have gone from laggard to leader this year

Unlike the US, Spanish stocks are nowhere near their pre-crisis peak, and the iShares MSCI Spain ETF (EWP) has underperformed most other European equity ETFs since 2008. Massive unemployment and negative growth have kept investors away, as they’ve questioned the country’s solvency. However, downward trends eventually give way to mean reversion as a country’s economy begins to go from awful to less bad.

There are certainly risks involved here. Spain could be entering the early stages of a recovery, or it could be setting investors up for another dip, like in 2012. But in a low-yield and low-growth world, opportunities for large gains are few. In each post of this series, I’ll walk through the factors, explain the data points, and tie it all back to what it means for Spanish stocks.

The Realist Discussions

  • Spaniard

    This is absurd. The spanish economy is far to hit the bottom. Just last week some important businesses declared Chapter 11 such a Fagor or Panrico. A few months ago Pescanova one of the largest fishing industries in the world declared chapter 11 under the Spanish law. El Corte Ingles have plans to close some of its centers maybe up to 40% of its department stores as it’s being rumored. The energy sector is affected by low demand and bad investments such as Repsol in Argentina. Recently the gas storage project Castor opffshore was stopped due to earthquakes caused by the offshore platform being over a geo fault which left a 1.8 billion liability on the project.

    Spain is such a mess one have to be a fool to invest there.

    • http://marketrealist.com James Malthus, Macro Analyst

      Spain exited recession yesterday.