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.

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Spanish equities have gone from laggard to leader this year

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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.


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