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: It’s all in the tone - (Asia-Pacific market rose modestly with European futures up and those for the US modestly down) – Asia-Pacific markets rose on a moderate tone by the Fed Chairman and positive corporate earnings.?Futures for Europe were up and those for the US moderately down.

Response to the crisis: Pay more, produce less (not a good combination) - (The minimum wage rises 65% and productivity falls 5% since 2016 (Expansion p28)) – The main problem with the Spanish labour market is declining productivity. And this combined with higher minimum wages should logically exclude a larger number of potential workers from the workforce. The problem is that further increases in the minimum wage are being planned without providing sufficient incentives to increase investment that might boost productivity.

Ence: May you win a lawsuit (it’s a Spanish thing) - (Ence’s share price rises 27% as the Supreme Court backs the continued operation of its Pontevedra plant until 2073 (Expansion p4)) – The uncertainty about whether Ence could continue to operate its Pontevedra plant due to lawsuits regarding if its concession was still valid has been hanging over the share price for some time. It has also led to Ence having to focus investments in its other plants, which may not have been the optimal decision. And no one will compensate Ence or its shareholders for the impact. Although they are clearly happier now. In Spain there is a saying: May you have lawsuits and win them (and it’s not a positive).

Banks: Peak optimism - (Massive upward revision of target prices for banks (Expansion p16)) – 2022 bank results have been good due to the combination of higher NII and low NPLs. And the market is betting that central banks will raise rates in a soft-landing scenario. So, the momentum to raise target prices is almost irresistible, especially as target prices tend to follow market price action. But if central banks want to really kill inflation, they may have to raise rates to the point where NPL growth exceeds that of NII.

Macro: Rising with less energy - (The Industrial Production Index rises 0.6% in December (adjusted for seasonality and working days) vs. -0.7% in November (National Statistics Institute)) – The industrial production report is quite positive, as not only does it feature a rebound from November’s decline, but it also shows strong growth across most categories, with only intermediate goods and energy dragging the index down. The question is to what extent this is due to the recent softening of energy prices, and how long this will last.

*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.?