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: Disappointed and nervous - (Asia-Pacific markets declined with European and US futures fluctuating) – Asia-Pacific markets declined on continued disappointment with China stimulus and nerves ahead of further Fed statements. European and US futures fluctuated.

Response to the crisis: Not much of a choice - (According to the Independent Fiscal Authority (Airef) if there are no reforms, expenditure on the elderly will push up debt/GDP to 150% (Expansion p31) – A situation where expenditure related to the elderly (i.e. mostly pensions) exceeds the income of the system is likely to lead to an increase in debt, especially as any significant efforts to boost the income (if they work at all) are likely to slow the economy (i.e. worsening debt/GDP numbers). Controlling expenditure would also have an impact on “growth”, in addition to the quality of life of pension recipients. Not much of a choice.

Banks: If life gives you lemons, try to make lemonade - (CaixaBank’s Chairman says that it will be the Banks that decide on pricing policy, admitting that although rising rates have pushed up profits, they still do not cover cost of capital (Expansion p16)/Banks ask the upcoming Government to use the tax on banks to help pay mortgages (Vozpopuli) – Stating that it will be the banks that decide on pricing policy as regards deposit remuneration is a noble sentiment (as far as market freedom is concerned), although perhaps CaixaBank would not be the best spokesperson for the sentiment given the Government’s stake in the bank. ?Using the proceeds of the tax on banks to subsidise borrowers with variable rate mortgages would be a good example of “if life gives you lemons, make lemonade”, as the lower payments for variable rate mortgages would lower the risk to credit quality and the need for provisions, thus at least partly offsetting the impact of the tax.

Utilities: Crowding out - (Spain accumulates €1.16bn in unpaid adverse arbitration decisions on renewables (Expansion p32)/The PP candidate for PM negotiates with Iberdrola and Endesa the extension of the useful life of nuclear power plants (Vozpopuli) – The large, and growing, volume of adverse arbitration decisions regarding the past cut in renewable remuneration is negative, not only from the point of view of the monetary cost (given the increasingly aggressive attitude of the creditors), but also with respect to the appetite for further investment. Extending the useful life of nuclear power plants would be a plus from the point of view of costs to the system, although it would risk “crowding out” new renewables investments.

Real Estate: Is there really a valuation gap? - (Castlelake plans to take Aedas private due to its low market valuation (El Economista p5)- A combination of rising interest rates and hostile government policies has done little to boost the share price of real estate companies in the market. On this basis, it is logical that rumours about takeovers are increasing. The key question is whether a large gap between private and public market valuations is justified. All said, the rise in rates and hostile policies apply to both.

*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.?