How To Invest In Spain

SPANISH 10 YEAR GOVERNMENT BOND YIELDS (%)

Spanish equities are not particularly attractive either, in the near term. First, in the absence of a Spanish specific catalyst, they are likely to follow global equities, with a high correlation to the German stock index (the DAX). Global equity market malaise combined with Spanish specific political issues has resulted in underperformance for the Spanish stock exchange, called the IBEX. As can be seen by the chart, Spanish stocks have consistently lagged German stocks. That said, investors are able to access ETFs that represent the IBEX, such as iShares EWP. There are also large Spanish corporations that issue ADRs that are easily accessible by foreign investors. For example, two large financial institutions, Banco Santander (ticker SAN) and Banco Bilbao Vizcaya Argentaria (BBVA) along with the well-known telecom company Telefonica (TEF) appear on the New York Stock Exchange or the NASDAQ.

SPANISH IBEX AND GERMAN DAX (EQUITY INDICES)

Finally, Spanish corporations issue debt that is accessible to foreign investors, primarily through mutual funds. The corporations mentioned above are all highly rated (investment grade). Often money market funds contain paper issued by these institutions, and both corporate bond funds and global bond funds typically carry positions in Spanish corporate debt, as many of these firms are rated well and can offer a yield pick-up.

Since as an economy Spain has potential to more dynamically respond to upticks in global growth, investors should keep an eye on developments. If and when the political impasse is removed, Spanish investments could be positioned for a rebound. If European or global growth improves, Spain’s exports would likely pick-up and the economy and firms can benefit immediately. For the longer term, unless the government gets serious about further reforms and reigning in regional government spending, risks will remain that can jeopardize longer-term investment performance.