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: A kinder view of China - (Asia-Pacific markets rose as do European and US futures) – Asia-Pacific markets rose after approval of the US debt ceiling and improved sentiment on China, with attention now focused on US jobs numbers/Fed policy. European and US futures point up.
Response to the crisis: The more the merrier - (The Government trusts in being able to break tourism records this year (Expansion p23) – The tourism sector has been a pleasant surprise in 2023, with strong international tourism inflows helping to offset any weakening in domestic demand. So far indications continue to be good for the summer high season. But it should be noted that part of the rise in spending is due to higher prices, which in turn also reflect higher costs. As always, the main question is to what an extent customers will be willing to come, especially if ECB policies aimed at lowering overall demand have an impact.
Hotels: Not all the money comes home - (Spain received 7.2m international tourists in April +18.5% with expenditure of €8.58bn +22.7% (National Statistics Institute) – The number of foreign tourists received in April is positive as it represents a 1.2% higher figure than in the corresponding month of 2019. This said, even if April is a key month, the 18.5% YoY rise continues the slowing growth trend seen since the start of the year. The rise in spending reflects both the rise in tourist numbers and prices (being 20.1% higher than in April 2019). The fact that some of the components that showed the highest growth (i.e. packaged tours +30.4% and international transport +26.4%) are not fully under the control of the hotels detracts from the positive view.
Banks/Investment: A bond fund is not the same as a bond - (Spanish investment funds add €26bn to assets under management in 2023 to 328bn (Expansion p16) – A rise in assets under management is positive for the banks, which manage a large part of the assets, and makes sense for savers seeking a higher return to offset inflation given the low propensity by banks to raise deposit rates. Personally, I can see the attraction of investing in money market funds, although not so much in longer duration bond funds, unless investors are betting on a swift reversal of ECB interest rate policy. If it is the higher bond rates that appeal, it would be better to buy the bonds directly and hold them to maturity.
Macro: Some of these are not like the others - (The ECB confirms a 25bp rate rise in June in the final stretch of its rate raising process (Expansion p13) – The ECB continuing to raise rates at least for a while makes sense, given that underlying inflation rates remain stubbornly high. One of the problems, however, is that ECB rates are the same throughout the Eurozone, but inflation is not, leading to some countries (currently Spain) having higher real rates than others. And this has implications, among other things, for the government fiscal balance.