Economic power in Europe is starting to shift, with the Spanish Ibex 35 Index up almost 9%, making it one of the few major indices in Europe in positive territory
Looking for a hot market? So far this year, the place to start is Madrid.
After three years of savage declines in stock prices, it is rare to see a market heading for an annual gain. Since the start of the year to 16 April, the Spanish Ibex 35 Index was up almost 9%, making it one of the few major indexes in Europe in positive territory.
Nor is the bull's presence in Spain restricted to big companies. The broader Madrid Stock Exchange General Index is up 7% this year.
True, the numbers are modest. They may reverse themselves later this year. Still, compared with their peers in other countries, the performance of Spanish stocks is impressive: the Cac-40 Index in Paris is down almost 5% this year and Germany's Dax is down 2%.
When a bull market in European equities finally returns, Spain may well be the market that leads the way.
There are two reasons for this. One, Spain is witnessing a modest mergers and acquisitions (M&A) boom. That may well continue.
Two, among the 12 nations sharing Europe's single currency, economic power is shifting from the core to the periphery of the Continent.
For Europe's M&A bankers, Spain has been one of the few growth markets this year. Gas Natural, Spain's biggest natural gas company, has bid E25bn for the power utility Iberdrola. If Gas Natural's bid gains regulatory approval, and if it succeeds, the company will have transformed itself into the world's fifth-largest publicly traded utility.
Caltagirone, Italy's fifth-largest builder, has launched a E2.6bn bid for the Spanish real estate company Metrovacesa. That bid may fail. The offer closed on 15 April. But whatever the outcome, it has boosted Metrovacesa's share price. It also illustrates how the Spanish property boom is attracting interest from around the Continent.
Europe's fifth-most successful adviser on M&A transactions this year is Invercaixa Valores, the investment-banking unit of La Caixa, Spain's largest savings bank. It is ahead of traditional European powerhouses such as Deutsche Bank and Credit Suisse First Boston.
The strength of the Spanish stock market is an entrepreneurial as well as M&A story. The best-performing stock on the Ibex this year is the pharmaceutical and veterinary drug manufacturer Zeltia.
Zeltia's shares have surged since 1997 on optimism that its first drug, Yondelis, derived from sea squirts for use against tumours in soft tissues, may get approval soon.
Then there is Inditex, owner of the Zara fashion chain. Its shares dropped 20% in a day last month after it posted the weakest quarterly profit growth since its initial share sale in May 2001.
Still, that growth was 25%. Zara remains one of Europe's most successful new retailers of the past decade and one of the few with the potential to create a global brand.
The backdrop to the rise of new entrepreneurial companies is a Spanish economy emerging from a long period of hibernation.
Foreign companies want to buy into a chunk of that success. Domestic companies are merging with one another as a prelude to expanding outside their home market.
By the standards of the 12 nations sharing the euro, Spain's economy is expanding rapidly. The Organization of Economic Cooperation and Development forecasts it will grow about 2% in 2003. The European Commission predicts European Union countries will grow 1% this year.
At more than 11%, Spanish unemployment is the highest in the region, while inflation is above the European average.
However, many analysts regard these figures as growing pains. Spain is part of what, in another context, US Defense Secretary Donald Rumsfeld called New Europe. New Europe is benefiting as the single currency speeds the cross-border transfer of capital and technology.
This makes Greece and Ireland, along with Spain, strong candidates for above-average annual growth rates among the 12 nations sharing the euro, while France and Germany look like weak candidates.
The Dublin and Athens stock markets may be too small for investors who need big, liquid markets to exploit the rise of New Europe. The Spanish stock market, which is doing well already, may do even better in future.
Bloomberg newsroom, London
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