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: Fuelling inflation fears - (Asia-Pacific markets saw mixed trading with European and US futures pointing down) – Asia-Pacific markets saw mixed trading as the rise in oil prices restarted fears of inflation. Futures for Europe and the US point down.
Response to the crisis: Certainty is not politically attractive - (Moody’s calls for an adjustment in public pensions in Spain in order to avoid a ratings downgrade (Cinco Dias p25) – The gradual ageing of the population and the decision to index pensions to inflation are likely to lead to the weight of pension payments negatively impacting the rating. However, the problem is framed as materialising in coming years/end of the decade. This is not ideal from the point of view of resulting in immediate government action, with the remedies suggested by analysts being mostly reliant on increasing GDP growth rather than limiting pension growth. This might be politically more palatable, but significantly less certain.
Telefonica: Friends don’t surprise friends - (Saudi Telecom buys 9.9% of Telefonica for €2.1bn in a transaction that requires Spanish government approval (Expansion p3) – The above transaction would make Saudi Telecom the largest Telefonica shareholder, although the former has stated that it is not interested in taking the latter over or reaching a majority stake. Saudi Telecom is majority owned by the Saudi state via its sovereign wealth fund. Both Saudi Telecom and Telefonica have underlined the “friendly” nature of the deal. However, Telefonica has also pointed to the transaction being a “surprise” and there is little point in surprising friends, right? And the timing, a foreign government-controlled firm buying a significant stake in one of Spain’s largest companies, and one involved in the defence sector, with only a caretaker government in place, seems odd. This might spark further speculation.
Repsol: Because it can - (Reopens the price war in the midst of the rise in fuel prices (Expansion p4) – Repsol is doubling the discount it offers it offers in its various loyalty plans This allows it to further boost the attraction of its combined offerings (fuel, electricity, gas etc.) and limit the threat from low-cost operators who are unable to match the discounts and all of it funded by the rise in oil prices. As the owner of the largest petrol station operator, it is likely to drag the rest of the sector with it. To the extent that this represents a cross subsidising of prices, with low cost/independent operators unable to replicate them, the initiative might be deemed anti-competitive. But it pushes down prices, so it is unlikely to be challenged.
Macro: You can always dream - (The services PMI falls to 49.3 in August from 52.8 in July (Samp;P Global) – The report is not positive, with output and new orders (especially foreign) fell, hiring slowed and margins tightened (faster rise in input than in output prices). The reading ends a nine-month period of expansion. Practically the only positive was the improvement in confidence regarding future business, while according to Samp;P’s model the result points to a -0.1% of GDP in 3Q23, with expectations that things will continue to slow in the next months. You can always dream.
*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.