FXstreet.com (Barcelona) - Spain has clearly been an enigma as of late. According to the Portfolio Strategy Research Team at Goldman Sachs, “we would be cautious about a more long-term or fundamental positive call on Spanish equities.” First, sovereign spreads have played a role in the underperformance of Spanish equities, but they are far from the only factor.
The lack of earnings (and hence dividends) has been key, and this has reflected the weakness of the Spanish economy. Of course, these issues are not mutually exclusive – the reason for the widening in sovereign spreads is partly related to the weakness in the economy and the poor capital positions of some domestic banks.
We have observed in the past the strong outperformance of German equities versus Spanish equities. “However, crucially, this outperformance has not been achieved as a result of a re-rating (unlike in bonds, where bunds have benefited from a substantial flight- to-quality premium), but instead because Germany companies have consistently produced better earnings.” they add.
The lack of earnings (and hence dividends) has been key, and this has reflected the weakness of the Spanish economy. Of course, these issues are not mutually exclusive – the reason for the widening in sovereign spreads is partly related to the weakness in the economy and the poor capital positions of some domestic banks.
We have observed in the past the strong outperformance of German equities versus Spanish equities. “However, crucially, this outperformance has not been achieved as a result of a re-rating (unlike in bonds, where bunds have benefited from a substantial flight- to-quality premium), but instead because Germany companies have consistently produced better earnings.” they add.
