Why is the Spanish stock exchange one of the weakest when the economy is showing one of the highest growths in the European Union? If we see the evolution of the benchmark Ibex 35, we will notice a clear change since the beginning of 2015.
There was a continuous growth since the turmoil in 2012, when many investors bet for a bankruptcy of the fourth largest EU economy. This situation would have been very risky for the whole EU and the solution came finally with a banking bailout of 40,000 million euros.
Spain was very dependent economically from tourism and building. The crash of the building sector and the global crisis that affected the tourist sector were painful for both growth and employment. The recession took the unemployment rate over 24%. What is the current situation? GDP growth around 3.2% in 2015 and unemployment around 20%, but while the tourist sector is again flourishing (partly, because of the political crisis in the south bank of the Mediterranean Sea), the building sector disappeared and the country didn’t move to any alternative economic sector.
The current decrease begun in January 2015, when the business and consumer confidences fell and the stock exchange went down. Behind these trends, there were two factors: the possible political instability due to the appearance of new parties (particularly, the populist left-wing Podemos, which became very strong in the surveys) and the economic unbalances in the country (debt near 100% of the GDP, high budget deficit, weakening of the Social Security, trade deficit).
The failure of the politicians to create a government after the election on last December didn’t help to take decisions to reverse a possible stop in the economic improvement. The repetition of the election in June resulted similar, because the scenario is not clearer. The weak victory of the right-wing Partido Popular seems to be the beginning of a period of long negotiations to pass bills and budgets.
Our global trend chart of Spain shows the evolution of the last 12 months. It is easy to perceive that the Spanish market had low opportunities to invest. The Brexit also operate negatively.
What can investors expect for the next months? It depends on the speed to compose a new government and the decisions that it takes. If the decisions agree what the markets expect (budgetary control, spending cuts), the exchange will possibly experience a relief and more opportunities will surge to invest.