Take 5 and come back tomorrow

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: Getting ready for summer - (Asia-Pacific markets were mixed with futures for Europe and the US pointing to flat performance) – Asia-Pacific markets were mixed as investors continue to try to make up their mind regarding whether the recovery will lead to inflation and withdrawal of stimulus, amid rising investor complacency. Futures point to flat performance in Europe and the US.

Response to the Covid-19 crisis: A minimum tax might not be effective - (The agreement of the G7 on a minimum global corporate tax opens the door to Spain raising the corporate tax already in 2022) – It is somewhat incompatible to state that the Covid crisis only had a temporary impact on the economy and to increase taxes in order to face its consequences. If the economy recovers, there should be no need for higher taxes. And If the consequence is that the economy remains weak, the last thing that is needed is additional taxation. Additionally, there seems to be some confusion about what the G7 agreement means. If it is simply a “minimum corporate tax rate” it should have little impact on Spain (as its rate is already higher than the proposed 15%) other than perhaps to help recover some taxes now collected by countries with a lower rate. It is another thing if what is involved is a “minimum effective corporate tax rate”, which would involve doing away in practice with the application of many of the deductions currently in force. If that is the intended goal. It would be more transparent to just do away with the deductions (and explain why).

Utilities: Shift the blame - (The Minister for Ecological Transition asks the National Commission on Markets and Competition (CNMC) to investigate any irregular conduct or bad market practices by the players of the electricity market while the Stock Exchange Commission (CNMV) reviews the accounts of the renewable firms in order to apply a single criterium regarding the value of the pre-2013 plants) – The Government asking the Competition Authority (CNMC) to review whether there are any irregular conducts and/or bad market practices in the wholesale electricity market should be taken as a reproach by the CNMC, as it is the latter’s job to make sure that those do not take place. That said, it is more likely part of a scapegoating exercise destined to try to shift the blame for the rise in electricity prices from climate change related causes (i.e. higher natural gas and CO2 prices) to nefarious behaviour by evil utilities. What it certainly does not do is to lower perceived regulatory risk.

Acciona: Sharing is caring - (Acciona estimates a gross impact of €29.4m (€12.1m net) on its profits from application of the proposed elimination by the Government of “windfall profits” of certain assets) – Acciona has bad luck with respect to the timing of its renewables’ capital markets transactions (in this case the IPO of its Energy business). Although the Government’s current proposals for dealing with the sharp rise in electricity prices have only a mild impact on its valuation, the problem is that they show that the Government is quite willing to break the rules when necessary. That being the case, perhaps it is a good idea to share the risk with others.

Macro: Nothing to see here, move along… - (Industrial production rises 48.2% YoY (adjusted for seasonality and working days) in April) – The sharp YoY rise in industrial production in April was to be expected given the base effect (April 2020 was entirely impacted by the lockdown, with production falling over 34%), with the rebound supported mainly by the +222.1% of durable consumer goods and the +117.6% of capital goods. There is relatively little to be read into the figures, especially as the underlying improvement in the manufacturing sector has already been highlighted by the PMI reports.

*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.