First of all, let’s be clear. The following is not investment research/advice. And, as such, it involves no investment recommendations. These are my thoughts on Spanish equity issues, which I find relevant. I share them freely (and not just as regards price). As always, I am only trying to help. Please read the rest of the “discomplainer (*)” at the end of the article.
Market environment: Same all, same all - (Asia-Pacific markets were mixed with European futures down and US ones flat) – Asia-Pacific markets were mixed on doubts about China growth as well as US monetary policy. Futures for Europe were mildly down and those for the US flat.
Response to the crisis: If you want to keep a secret, write it down in a book - (The EC corrects Spain’s government: it committed to new tolls in 2024 (Expansion p22) – The above would not be news had the PM not denied the commitment by Spain to introduce tolls on government owned motorways clearly spelled out in the plan submitted in order to obtain the Next Generation funds. As we say in Spain, if you want a secret well kept, write it down in a book (or even better a government report). No one will read it.
Utilities: Volatility is a problem - (Growth in solar PV is negatively impacting on corporate PPAs (Expansion p3) – The rising weight of renewable energy in Spain’s electricity generation is leading to increasing swings in prices as the generation volume cannot be managed easily (i.e. the wind does not always blow and the Sun does not always shine, and the wild swings in oil/gas prices do not help either). This is leading to difficulties at the time of signing long-term PPA agreements between generators and corporates, as there is always the risk of ending up in a “stranded” contract if the price is not “right”. Volatility could lead to higher risk premia being embedded in contracts, which would not be good.
Hotels: You pay what you can pay - (High season hotel prices have risen 66% in two years (Expansion p25) – Hotel prices have risen partly as a result of higher costs but mainly because they can. There has been a strong rebound in pent-up vacation demand after the pandemic leading to higher occupancy levels and pricing power, helped by “Covid-savings”. But wages have generally lagged inflation. I remain unconvinced that this will last. In the end, you pay what you can pay.
Macro: The deficit is down with energy - (May trade deficit of €3.114bn vs. €4.758bn last year on exports of €33.942bn +3.1% and imports of €37.053bn -6.9% (Ministry of Trade) – The reduction in the trade deficit would be good news if it were not entirely due to the decline in the energy deficit, as the non-energy balance actually swung from a €74.7m surplus to a €175.1m deficit. More than the entire decline in imports was due to energy (-38.7% energy imports), with consumer products not helping either. At least capital goods imports held up (+11.8%) although this can also be seen as a loss of domestic competitiveness. This said, at least in exports it was automotive (+32.1%) and capital goods (+16.1%) that stood out.
*The above information has been read/understood/summarised/evaluated/copied as well as I could to provide a guide to Spanish equities, given available timing/intellectual constraints, and I accept no liability for misreading and/or mistranslating the original copy as set out in my previous article (which I urge you to check, as I am only trying to point you in the right direction, I hope). As for what you may decide to do, after reading the above, please contact your legally approved provider of investment advice on Spanish equities.
