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: Basically unchanged - (Asia-Pacific markets declined slightly with European and US futures basically unchanged) – Asia-Pacific markets declined slightly on doubts about Chinese stimulus and US/Europe monetary policy. Futures for Europe and the US were basically unchanged.

Response to the crisis: Two positives do not make a negative? - (The Junts Catalan polítical party will demand a renegotiation of the Catalan regional rules to obtain €20bn more revenues (El Economista p23) – I don’t really want to talk about the potential impact of the last elections because my wife says that it makes my blood pressure rise (important side comment: “happy wife, happy life). But one of the results is that Spain’s budget is likely to be an even bigger bazar than usual. Whatever government is formed is likely to put US pork barrel policies to shame. In a fragmented parliament, especially if it depends on regional interests, is likely to be dependent on the will to write a cheque(s). In the short term this might even be positive, as increased government spending could support growth, even in the context of a slowing global economy. Although this would depend on the EC not opposing these kinds of policies. Yeah, right.

Banks: Unintended good financial advice - (Banks lose 130,000 shareholders despite the rally in the sector (Expansion p9) – Spanish banks losing shareholders (2.3% of the shareholder base in 1H23 vs. end-2022) at a time of booming sector share prices would not seem to make much sense. Except in the world of Spanish retail banking. Spain does not have a developed independent financial advisor sector, so a large part of Spaniards get their financial advice from the banks. When interest rates were low and lending opportunities scarce, Spanish banks had little interest in attracting depositors. But they were interested in attracting shareholders so as to support share prices in a tough environment, and some got into trouble for this. Now that interest rates are higher, which is in itself pushing up share prices via increased NII, there is less need to steer bank clients towards becoming shareholders, as it may be more interesting for the banks for them to become fund investors, or even depositors (if the ECB really reduces access to funding). It may be a coincidence, but the large retail banks, with a higher weight of less sophisticated clients, are the ones that lose the most shareholders. And this is not to say that this was necessarily wrong. Some of the reduction in the number of investors might be due to savvy investors trading bank shares on their fundamentals (although this likely impacts trading volumes more than investor numbers). You know. Buy low, sell high. But, in my opinion, it is more likely to be due to bank branch “advisors” not recommending clients buy the relevant banks shares (at least in my case). This may be a good example of what unintended good financial advice looks like.

Taxes: Money makes the world go around, go around… - Tax collection rises 5.5% in 1H23 (Expansion p17) – Tax collection is partly a beneficiarie of inflation. The problem is that inflation moderates, as the ECB wishes, it might be more difficult to prime the economy on the back of public spending. And then taxes may have to be raised, which would further lower growth.

Macro: It’s all about future financial stability - (The May current account surplus amounted to €4bn vs. €2.6bn in May 2022, with the goods and services surplus rising to €6.4bn from €3.4bn (Bank of Spain) – The improvement in the current account in May was largely due to the trade balance as the tourism and travel number did not help a lot (tourism and travel improved from €5.0bn to €5.9bn, while “pro memoria” (i.e. not comparable), while trade numbers improved from -€4,8bn to -€4.1bn. A strong current account is important mainly if you have your own currency (which Spain does not). So, it is probably more useful as a measure of future financial stress if you do not contribute to overall EU sustainability.

*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.?