Julius Baer - El mercado español recupera claridad: es hora de sobreponderar

Christoph Riniker, CEFA - Jueves, 08 de Octubre

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• Catalonian regional elections have not derailed the stock market performance. Having more clarity, fundamentally positive drivers therefore come to the fore again. • Sticking to our peripheral call in the eurozone we therefore upgrade Spanish equities back to overweight.

SPANISH EQUITY MARKET

MORE CLARITY AGAIN: OVERWEIGHT

Key findings

Having temporarily reduced the rating due to increased uncertainty ahead of the Catalonian regional elections, we now reverse the call back to overweight again. Reasons for this are the calm market reaction, regained clarity about the overall situation and ongoing supportive fundamentals.

 

Uncertainty ahead of Catalonian elections

In the forefront of the Catalonian regional elections a couple of weeks ago we have downgraded Spain to neutral as we were not sure about the market reaction to a separatists’ majority. The parties in favour of a separation of Catalonia from Spain (Junts pel Sí and Candidatura d’Unitat Popular) have reached 48% of the votes, not an absolute majority but clearly more than the parties being in favour of a unified Spain. However, in the parliament a slight majority of seats could be won as shown in chart 1.

 

Relaxed market reaction

The equity market has reacted positively to the election results given that a separation of Catalonia from Spain is not imminent at the moment. The IBEX 35 today is 6% above the closing ahead of the elections, outperforming global equities by 3.5%. Chart 2 below shows that the IBEX 35 has turned positive near previous support levels (see dotted line). Based on our fundamental assessment we therefore turn positive again on the market and upgrade the rating back to overweight.

 

Fundamental reasons

First and foremost we stick to our peripheral call in the eurozone with Italy being the most attractive investment opportunity followed by Spain. Having a strengthening euro in our cards, peripheral markets with an elevated domestic exposure should outperform internationally oriented markets. Furthermore we expect the economic recovery in Spain to be continued with gross domestic product (GDP) growth being clearly above eurozone aggregate levels.

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Further positive factors for the market include the high percentage share of financials of more than 40% (the same applies to Italy). As we have outlined in a recent publication (Research Focus “Financials: remaining the most preferred sector”, dated 18 September 2015) this should bode well for peripheral markets. Last but not least valuations remain on fair levels.

 

Still watch politics

Upcoming general elections in December 2015 leave a window of uncertainty as major shifts in the composition of the parliament have to be expected. Currently the Partido Popular (PP) has an absolute majority in the Congress of Deputies and the Senate, followed by the Partido Socialista Obrero Español (PSOE). According to most recent polls new political parties such as Ciudadanos (C) and Podemos (P) will change this in the future. This is one of the reasons why we still prefer Italy to Spain for the time being.

 

Overweight Spain

Against this backdrop we increase the rating for Spanish equities to overweight again and adjust the price target for the IBEX 35 to currently 11’750 points which is based on unchanged earnings prospects and an expected valuation

level of circa 16x.

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