Take 5 and come back tomorrow (8/2/24) Markets Budget Banks Prisa Industrial Production

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: Deflated Chinese hopes - (Asia-Pacific markets were mixed with European futures pointing up and those for the US flat) – Asia-Pacific markets were mixed with China fluctuating under the influence of hopes of stronger government support and evidence of deflationary pressures. European futures point up and those for the US are flat.

Response to the crisis: Hitting the first speed bump - (The PP rejects the Government’s deficit path in the Senate, creating an obstacle to the approval of the budget, with the Treasury minister stating that this blockage could lead to €4.5bn lowered allowed spending by regional and local governments and with the Catalan separatist Junts stating that if negotiations continue as they are it would vote against the budget (Expansion p24) – The PP has used its absolute majority in the Senate to block the Government’s fiscal path on which the 2024 budget is based, thus delaying its approval. However, the treasury minister argues that if the path is blocked twice the budget could continue its approval process using the fiscal path sent to the EC in spring, which would involve stricter spending limits for regional/local governments (many of which are controlled by the PP). That is not the only problem for the budget, as Junts is providing a good example of the difficulty in securing a majority for approval of the budget which I recently warned about.

Banks: Adapting to the environment - (Households renegotiated mortgages for €4.728bn in 2023 +147% (8% of the total mortgages), lengthening maturity or switching type of interest rate, the highest level since 2015-16 (Expansion p16) – The rise in mortgage renegotiations is likely due to the desire of households to protect themselves against the rise in interbank rates via switching to more stable products such as mixed or fixed ones and that of the banks to prevent NPLs by adapting the monthly payments to the capacity of the debtor (switching products and lengthening maturities).nbsp; This could be negative for NII in the short term but may be a positive in the long term, in NII and credit quality terms, especially if the interest rate cycle turns towards declines.

Prisa: Selling the megaphone - (Shareholders close to the Government seek investors in order to buy the El Pais newspaper and the SER radio network (El Confidencial) – Selling its flagship media assets would “depoliticise” Prisa and allow it to focus on its educational publishing business. However, giving up political influence would only be worthwhile if the price fetched by the sales were enough to financially stabilise the company. Assets such as El Pais and the SER network are very difficult to value, given that the returns for the buyer would be more in terms of political influence than earnings. Up to now potential divestments focused on the Santillana educational publishing business. If the media assets can be sold at a good price that would be a better course of action.

Macro-Industrial production: Weak performance - (The Industrial Production index for December fell 0.2% YoY (adjusted for seasonality and working days) vs. +1.3% in November (National Statistics Institute) – December represents a clear worsening vs. November (even worse in the unadjusted figures which show a 4% YoY decline in December vs. +1% in November). The largest drag came from consumer goods (-3.6%) with the main support coming from energy (+1.9%). This seems a weak performance even in the case of energy (given that average temperatures were 2o Celsius cooler on average in Decembre23 than in December22).

*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.