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: Good is bad - (Asia-Pacific markets were down with European markets and US futures slightly up) – Asia-Pacific markets declined as strong US retail sales figures impacted on hopes of early interest rate cuts. European markets were slightly up as well as US futures.

Response to the crisis: Nothing is certain except death and taxes - (The Minister for Labour wants to intervene in the wages of corporate managers (Expansion p27) – For the time being the Minister for Labour is only calling for a debate regarding the high earnings of corporate executives and directors. It is not clear whether she would like to introduce a limit so as to keep a certain proportion between bottom and top wages or whether she simply wants to tax high earners further. If I had to guess the latter, as the former would likely result in a loss of tax income. In any event, the pay of top executives/directors is none of the Government’s business as it is approved by the shareholders, who are the ones paying. And the market for top executives/directors is a global one, so limiting earnings would hardly be a good calling card to attract talent to Spain.

Taxes: Justice delayed is justice denied - (The Constitutional Tribunal leans toward cancelling the measure taken by the last PP government limiting the ability of corporates to offset profits with accumulated losses (Expansion p26) – If the Constitutional Tribunal were to rule against the decree that severely limited the use of tax loss carryforwards, international double taxation and loss of value of equity stakes this would be good news. However, it is to be noted that we are talking about a 2016 decree which involves €5bn in potentially excess tax paid, which presumably would have to be returned. But in the end justice delayed is justice denied, and this does little to promote the image of Spain as a country with a stable and predictable tax/regulatory system.

Hotels: Tourism does not take a break - (Tourism GDP will exceed €200bn for the first time in 2024 having contributed 12.8% of GDP in 2023 (Expansion p29) – I have repeatedly mentioned that tourism has been one of the bright spots of the economy. It accounted for 12.8% of GDP in 2023 and the weight should increase further in 2024 where growth of close to 8% is expected. The main issue is that growth depends very much on external factors (economy/holiday appetite in the country of origin of the tourists and oil prices among others). Plus, an economy dependent on tourism is unlikely to make much progress in productivity gains.

Cellnex: Growing up is hard to do - (Expects to grow in Spain via radiodifusion and optic fibre (Cinco Dias p3) – As I have already mentioned, the increasing exhaustion of growth potential in tower ownership and competition from telecom operators who have tower subsidiaries is likely to push Cellnex to expand in higher value-added tech services. The problem is that although this may allow Cellnex to continue growing it will do so with higher risk (technological among others).

*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.