The Spanish market has been the weakest European performer this year, according to Guillaume Rambour...
The Spanish market has been the weakest European performer this year, according to Guillaume Rambourg, European fund manager at Gartmore.
He says: "This is very disappointing considering Spain's great performance in 1997, 1998 and 1999."
In investing in the region, Gartmore focuses on telecommunications, utilities and banking sectors as these represent 80% of the Spanish index, Ibex.
Rambourg has a 3% holding in Telefonica, despite predicting weak returns for the company in the short term.
The telephone company has recently acquired some minor companies in Peru, Argentina and Brazil, which has generated investor interest. The resignation of its chairman has also left negative sentiments in the market.
Rambourg believes, however, that the prospects are good in the medium to long term once the uncertainty of leadership is out of the way.
According to Rambourg, Telefonica's cheap acquisition of the Latin American companies bodes well.
Gartmore holds the Spanish bank BBVA as it is a well-managed company.
He says the stock is fully priced, so there is no real upside at present and Gartmore is marginally underweight with its holdings.
There is some concern in the utilities sector as the government has adjusted tariff caps for the second time, due to worries over increasing inflation.
There is now uncertainty surrounding the government's next move in the sector and a hesitancy to invest.
Rambourg adds: "The upside is that utilities are good defensive stocks and are relatively cheap at present." Gartmore does hold Endesa, a major utilities company for its defensive play.
Iain Galloway, investment manager at Standard Life, is also concerned over the continued tariff caps in the Spanish utilities sector.
He says: "As regulations are increasing and they have decreed tariff caps for the second time, we are worried that this will continue and are not chasing utilities in Spain."
Galloway is keeping an eye on the sector as the fourth largest utilities firm, Hidrow Cantabrico, is involved in takeover speculation.
Texas Utilities and Electrabel both hold stakes in the company that together add up to 29% of the company.
Galloway does not generally favour telecommunications but agrees with Rambourg and has holdings in Telefonica as it has good growth prospects, is still relatively cheap, is doing well in Latin America and has a lot of potential M&A activity.
He is interested in watching the company following the chairman's resignation.
Galloway says: "He was a great deal maker and the question is whether this rogue figure can be effectively replaced."
Perpetual is significantly overweight Spanish stocks at the moment, says Jeffrey Taylor, joint head of European Investment at Perpetual.
This is due to its favoured stocks being well represented in the region.
Galloway adds: "This is a reflection of Spain getting its act together economically speaking: government budget, economic growth and domestic demand all look good."
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