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: Waiting for WEF - (Asia-Pacific markets rose with European stocks wavering and futures for the US mildly higher) – Asia-Pacific markets rose on good US producer prices figures while investors await speeches during the Davos event this week. European stocks wavered and US futures showed mild gains.

Response to the crisis: Be realistic, ask for the impossible - (The Ministry of the Economy states that the EU prevents fining corporates that do not return their corporate domicile to Catalonia – Cinco Dias Sat p28) – One of the demands made to the government in order to provide much needed parliamentary support by the Junts party was to do away with the decree by the previous PP government easing the transfer of corporate domiciles away from Catalonia in the troubled times that surrounded the illegal referendum/declaration of independence. This led to most of the large Catalan corporates, except Grifols, to do so, thus dealing a blow to the independence project. So, it is logical for Junts to try to reverse the measure now that it has enough leverage. But the problem is that this clashes with freedom of movement of capital within the EU. The most the Government may do going forward is to ensure that the domicile coincides where the bulk of activity takes place.

Short selling: Unrewarded service - (Over twenty short sellers sell 10% of Grifols and sink its price - Expansion Sat p3/Short sellers focus on Audax, Enagas and Solaria - Expansion p8) – Short sellers have a bad press, as they are seen as taking advantage of the misfortune of others. But in reality, they provide a service as they prevent overpriced companies from having even more excessive valuations that might suck in unwary investors. Plus, the situation is self-correcting. If the reasons to sell short turn out to be wrong the stock will bounce back, if they are correct a bigger fall might be averted. And it is worth bearing in mind that the short sellers will eventually become buyers in order to lock in the profit. And they do so with negatively asymmetric returns. The most they can gain is 100%, the most they can lose if the stock keeps rising is theoretically infinite.

Wages: The road to hell is paved with good intentions - (The Ministry of Labour agrees with the trade unions a rise in the minimum wage of 5%to €1,134 – Cinco Días Sat p26) – Raising the minimum wage always sounds good as it raises the income of those at the lower end of the wage scale. But without productivity gains it ends up pricing unskilled workers out of the market. Additionally raising the minimum wage boosts payroll tax payments and squeezes corporate margins, especially in services industries. Still, it is a good way to buy votes.

Macro: More than meets the eye - (The December CPI fall to 3.1% YoY from +3.2% in November, with underlying inflation falling from 4.5% to 3.8% - National Statistics Institute) – The direction of travel of inflation in December was positive, although it is to be noted that it benefited from reduced taxes as the CPI nbsp;at constant taxes showed 3.4% growth and there are a further number of subsidies that would have raised the inflation rate to 4% in January had they not been extended. Additionally, the base for comparison was relatively benign at +0.2% in December 2022, with January presenting a more challenging -0.2%.

*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.