A head start in Spanish equities

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: Misery loves company - (Asia-Pacific markets declined with European and US futures pointing down) – Asia-Pacific markets declined on fears that higher interest rates and geopolitical concerns could lead to a global recession, with pressure on Asian tech firms not helping. European and US futures point down.

Response to the crisis: Do as I do not as I say - (Bank of Spain sees signs of exhaustion in the potential agreement on wages and profits to control inflation/Wages agreed in wage agreements through September rise 2.61%, 3.5 times less than inflation) – Bank of Spain has been calling for an agreement between workers and corporates to trade wage moderation in return for corporates not fully passing higher costs to consumers. ?However, for this to work, the Government should set a good example. Which it certainly has not. The average wage increase agreed through September is 2.61%. But civil servant pay will be increased by 3.5%, that of government ministers (and PM) by 4% and pensioners will see an 8.5% adjustment. No wonder the percentage of wage agreements including wage revision clauses linked to inflation has increased from 17% in 2021 to 45% in 2022 (50% expected for 2023).

Interest rates/currencies: The dollar wrecking-ball - (Rate increases by the Fed risks a world recession according to the EU’s top diplomat/The strength of the dollar and fear of a global recession are focus of the IMF assembly) – The apparent determination of the Fed to fight inflation via rate increases no matter what. This has led to a strong dollar, which is causing tensions in emerging markets with dollar debt, and forces other central banks to raise rates in order to defend their currencies. The coordinated tightening risks causing a worldwide recession which may not be fully discounted.

Repsol: Living in an imperfect world - (Repsol’s 3Q22 refining margin rose 296% YoY and -45.5% QoQ) – This type of news is not positive in view of the tax the Government wants to impose on energy companies. One problem is that the refining margin shows a significant YoY increase with respect to a year in which the refining business experienced operating losses. Another is the fact that, in a perfect world, higher profits due to limited supply should lead to increased investment and additional supply. But ESG concerns make it difficult to increase refining capacity. This might even be fine if the resulting higher prices were praised as facilitating the decarbonization process via lower consumption/replacement by renewable technologies. But we live in an imperfect world.

Cellnex: If everything fails, lower your standards - (Cellnex considers buying a 40% stake in Vantage in order to enter Germany) – It would be surprising for Cellnex to invest €5.3bn in a non-controlling stake in the Vodafone towers vehicle. Without at least management control, this would be a purely financial deal, without Cellnex having any of the advantages it has over private equity firms. And it would risk sending the message that Cellnex is running out of room to grow in deals where it controls management and is able to create value.

*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.?