Threadneedle's overall economic forecast for Spain remains positive, in contrast to the stance on th...
Threadneedle's overall economic forecast for Spain remains positive, in contrast to the stance on the greater European market.
The Ibex 35 index has fallen 6.45% in sterling terms for the year to the end of June while the Bloomberg 500 index has fallen 8.51% over the same time period.
Economic growth in the country will slow over the second half of the year but is expected to remain healthy at 3%, down from 4%, says William Davies, head of Europe ex-UK at Threadneedle.
'Anything to do with the retail industry will continue to do well. Retail sales in Spain are up, with newly floated companies such as Inditex, a Spanish fashion retailer, reporting excellent growth. Elsewhere, construction industries are also doing very well. The Spanish government is pumping money into the infrastructure and companies like Dragados and Ferrovial are reaping the benefits,' he says.
The government has committed itself to a long-term spending programme that will last until 2005, concentrating primarily on road and rail links, says Davies. Unless growth stops altogether, the programme is likely to be completed, he believes, as government finances have been bolstered by strong domestic growth.
The utilities sector has also seen growth, following a series of takeover battles, and appears to be in a slightly better position than the banking sector, says Aegon Asset Management analyst, Peter Lucas. Domestic demand remains very high and profitability is increasing despite the attentions of an interfering government and regulator. However, there are clouds on the horizon, he adds. Short-term profitability is threatened by heavy Latin American exposure, and low rainfall could reduce the amount of power generated through hydroelectric methods.
Davies also favours this area of the market but is concerned that some companies in this sector have significant exposure to troubled Latin America markets.
Banks too are out of favour for this reason, with confidence in banks like BSCH sinking over the past few weeks, he says.
'There's a lot of negative investor sentiment towards some of the largest Spanish banks at the moment. In the case of BSCH this is probably justified, because it is heavily exposed in Argentina. BBVA on the other hand, has lent heavily in Mexico, which is actually doing very well,' Davies says.
Lucas is ambivalent about the prospects for banks along with those companies in the telecom sector. 'The larger banks' exposure to Latin America has hit stock prices hard over the past week or two,' he says. 'Fortunately, domestic demand remains very strong, with mortgage business at record levels. In part this is being fuelled by 'black money,' seeking to find a home before the euro changeover.'
Lucas thinks that BSCH and BBVA are in a digestion phase following merger and acquisition activity. He also perceives management friction between the newly merged partners at both companies.
In the medium-term, he is confident demand for stocks should strengthen once Latin American losses have been absorbed.
Value can still be found in banks.
Utilities looking strong.
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