Amidst historical seasonal fluctuations, the Spanish stock market has soared to its highest peak since January 2018, demonstrating resilience and defying traditional summer slumps. Encouraging economic indicators and attractive valuations have fuelled optimism despite historical trends.
The IBEX 35 Index, Spain’s benchmark stock market gauge, has surged by 5% within the first two weeks of March, marking a remarkable 20% increase compared to the same period last year. The rally has been underpinned by stellar performances from key corporations and the robust health of Spain’s economy.
A standout contributor to this recent upswing is Inditex, the parent company of globally renowned fashion brands such as Zara and Massimo Dutti, constituting a significant 14% of the IBEX 35. Inditex reported a record net profit of €5.4 billion for the fiscal year 2023, representing a substantial 30.3% surge from the previous year, propelling its shares to new all-time highs with a remarkable 7% increase.
Additionally, Spain’s banking sector, comprising nearly a third of the IBEX 35, has played a pivotal role in driving the market surge. Major banks like BBVA, Banco Sabadell, and Caixabank S.A. have witnessed year-to-date share increases of 25%, 21%, and 19%, respectively. This growth is largely attributed to higher interest margins stemming from elevated interest rates within the eurozone.
Spain has outpaced the sluggish eurozone by achieving 0.6% growth in the final quarter of 2023. The nation has also excelled in job creation, surpassing its European counterparts during the same period.
Strong growth indicators were evident in February, with the services and manufacturing sectors displaying robust expansion. The Services Purchasing Managers’ Index (PMI) surged to 54.7, marking the fastest growth in nine months, while the Manufacturing PMI rose to 51.5, signalling the first expansion in a year.
Further bolstering confidence, retail sales have maintained steady growth for 14 consecutive months, unemployment has plummeted to its lowest level since 2008, and annual inflation decreased to 2.8% in February 2024, its lowest in six months.
Notably, the narrowing gap between Spanish and German bond yields reflects growing confidence in the Spanish financial system. The yield on a 10-year Bonos is only 78 basis points higher than that of a German bund, marking the smallest gap since January 2022 and well below historical averages.
Moreover, Spain’s tourism sector has staged a full recovery from the pandemic-induced downturn, with summer tourist numbers in 2023 matching those of 2019. With a potential surge expected in the upcoming summer, surpassing the record set in 2017 remains within reach.
Despite historical summer challenges, evidenced by the IBEX 35 typically experiencing declines from May to September, the prevailing positive momentum and compelling valuation offer a counterbalance.