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: More of the same - (Asia-Pacific markets declined with futures for Europe and the US down) – Asia-Pacific markets declined as investors continued to adjust to fears of rates remaining high for longer and worried about property risk in China. Futures for Europe and the US point down.

Response to the crisis: Variety is the spice of life - (The fight between the Treasury and the regional governments causes a sharp change in the geographical application of wealth taxes (Expansion p30) – Spanish regions controlled by the PP (or the PP/Vox) delivering on their promises to lower/eliminate wealth taxes, and doing so within the room for maneuver provided by current legislation should not surprise. But the left complains that this results in unequal treatment between regions. And there I was thinking that the capacity to apply different policies was the essence of a decentralised state.

Corporate earnings: All are equal, but some are more equal than others - (Spanish corporates earned 17,7% more in 1H23 despite the decline in revenues (Cinco Dias p10)/Manufacturing gross profit falls 40% in the second quarter (El Economista p30) – The rise in earnings is largely due to the energy sector, with manufacturing doing especially badly. The main risk is that headlines talking about still significant increases in overall profits will be taken as an excuse to apply additional taxes on all corporates, without taking into account that energy sector windfall profits have already had a specific tax applied on them.

Banks: Holding up - (Mortgage NPLs rise to 2.49% at the end of 1H23 from 2.38% at end March (Expansion p19) – The rise in the NPL ratio is negative, although it still represents a decline vs. the 2.72% of June 2022.nbsp; Although the most powerful driver of NPLs would likely be a worsening of the labour market that has not taken place yet, the ability of borrowers to service their loans should continue to be under pressure due to the loss of disposable income resulting from inflation as well as the rise in interest rates aimed at fighting the rise in prices.

Macro: And now for the hard part - (The August wholesale prices index showed a 10.0% YoY decline vs. -8.6% in July (National Statistics Institute) – Most of the decline is the result of the fall in energy prices, as the ex-energy index only declined from +1.8% to +1.7%. This is not ideal as oil prices are on the rise again. Also note that the base for comparison was quite comfortable (August 2022 +2.7% MoM), whereas Oct22-Jan23 featured c.2% MoM declines), which is likely to make for a challenging end to 2023.

*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.