Spain exits its recession: Expect a reaction from Spanish stocks



With positive GDP growth last quarter, Spain is no longer in a recession

Spain’s government announced yesterday that GDP growth for the quarter was 0.1%, the first positive reading since the first quarter of 2011, and only the sixth quarter of positive growth in the last 21. The Spanish recovery continues to be heavily exports-based, and will likely remain this way as nominal wages continue to fall and the housing market bottoms.

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In my recent series on Spain, I went over several parts of the economy in order to show how signs of a cyclical bottom could be massively bullish for Spanish equities. The Spanish stock market has been on a tear, as investors anticipate improving fundamentals in the economy.

Unemployment also fell in Spain, confirming improvement in the economy

For the second straight quarter, unemployment in Spain beat expectations and decreased from the 27% peak of earlier this year. As the “internal devaluation” continues with nominal wages falling, more Spaniards will be able to find jobs and the economic recovery can become more domestic.

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Fiscal tightening also continued in the quarter, and is expected to maintain through 2014. This is bullish for equities as well, since the fiscal situation is nothing new, and as the country’s deficit shrinks, longer-term fundamentals will improve.

Spanish equities can still go up from here

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I’ve compared the situation in Spain right now to the US’s emergence from recession in late 2009 and 2010. US stocks bottomed months before unemployment peaked, and equities continued to rally through 2010 even though current economic fundamentals were poor. The same situation could play out in Spain, which would make ETFs with Spanish exposure such as the iShares Spain ETF (EWP) and the the SPDR EUROSTOXX 50 ETF (FEZ) good investments going into 2014.


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