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The Ibex 35 is paid to the caboose

The still photo of this year for the Spanish Stock Market places it in the last position of profitability with respect to the markets of its surroundings. The Ibex 35 shows a gain in the year of 7.4% (data until last Thursday), compared to the 20.8% of the Euro Stoxx50 index or the 22.9% that Italy has risen, 27% of Paris or the 27.6% of the US S&P 500, among others.

But this relatively worse behavior of the Spanish Stock Market and, therefore, of the price of its companies is not something new. The Spanish market has been behaving worse than its colleagues for more than a decade and the causes of this trend are numerous and varied. The joint value of the market barely moves over the years. At the end of 2012, the Spanish Stock Exchange was worth 945,000 million euros and ended 2020 with a capitalization of 948,000 million euros. The CEO of Bolsas y Mercados Españoles (BME), Javier Hernani, congratulated a few days ago – in the presentation of the annual balance of the market – that this year the Stock Market had once again exceeded one billion euros in value.

Abundant on this idea, Alfredo Echevarría Otegui, director of analysis of the Spanish Institute of Financial Analysts (IEAF), has made a calculation where the profitability of the Ibex 35 has been 73% lower than that obtained in the S&P 500 index, and 46 % lower than that registered by the Euro Stoxx50 in the last ten years. Data that show that investing in the Spanish Stock Market has been a very bad business compared to the opportunities in other markets. In this long period of time, it is impossible to find a moment in which the Spanish Stock Market has stood out from the rest of the markets.

Diego Jiménez-Albarracín, director of analysis of Deutsche Bank in Spain, considers key to explain this Ibex 35 always lagging behind the strong weight that the banking sector has had in the index these years and the two financial crises that have affected these companies in 2008 and 2012. “This can go from being a drag to a virtue in a short time if, as can be expected, rates stabilize or rise and growth consolidates. Banks are one of the most recommended sectors for 2022 due to the expected increase in their profits ”, he explains.

Another sector that experienced a bad year on the stock market, despite the brutal escalation in energy, was the electricity sector due to regulatory developments. Some regulatory changes in which experts agree as a cause of misbehavior on the stock market of electricity companies in 2021. Javier Niederleytner, professor at the Institute for Stock Market Studies (IEB), explains that “money flees from uncertainty and the perception of legislation not stable scares off foreign investors ”, who in his view also show concern about the growth of public debt and the presence of United We Can in the coalition government.

Some foreign investors who are responsible for half of the operations that are carried out daily in the Spanish market. From the perspective of a large investor such as an insurance company or a pension fund, “when it comes to placing their funds in southern Europe, it is clear that they have chosen Italy over Spain,” says Niederleytner. The appointment of the former president of the ECB, Mario Draghi, as head of the Italian Government explains to the IEB expert, the better performance of the Milan Stock Exchange compared to Madrid.

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Alfredo Echevarría looks further back and considers the evolution of the economy in recent years to be essential in the analysis of the low profitability of the Spanish Stock Market and discards, like Diego Jiménez-Albarracín, that the march of Spanish politics has weighed in the future of the actions. According to his calculations, in the last ten years accumulated GDP has fallen by 1.3% in Spain, while in the euro area it has risen by 5.2% and in the United States by 17.5 percentage points. If the period is reduced to five years, Spain has fallen by 1.2%, compared to the rise of 1.2% in the euro area and the 5.8% growth of the US economy.

Latin America

They have painted coarse in recent times for the investments of Spain in Latin America. The IEB expert points out that foreign investors see the Ibex 35 as a thermometer of these economies. Both 2020 and 2021 have been especially bad for Brazil or Mexico, where the large Spanish listed companies have a prominent presence and from where they get a good part of their turnover and profits. But Jiménez-Albarracín considers it something temporary, since these investments will once again be an attraction for the investor when these economies improve. The IEAF director of studies points out the need for a geographical diversification of multinationals towards Asia, which is the region with the highest growth rates, thus moderating the “current overexposure we have of Latin American economies”.

But the index also has other major shortcomings that are, only in part, a reflection of the Spanish economy. The Ibex lacks more technology firms, which are now summarized in Indra and Amadeus. Even though with the pandemic the tourism sector has been a drag, the director of analysis of Deutsche Bank considers “that an economic activity that represents between 10% and 12% of our GDP only has IAG, Aena, Meliá and part of Amadeus in the index ”, he concludes. Alfredo Echevarría considers that the Stock Market lacks growth values ​​such as technology or cyclical consumption. “They only represent 25% of the index compared to 40% of the weight of the utilities and health, the 15 % of financial companies and 10% of construction, real estate and industrial companies. ”

The advantage of the dividend

In this Spanish Stock Exchange with few growth values, its best asset is played with the dividend (part of the profit destined for the shareholder), which once again stands at profitability levels of 5%. A dividend that sometimes serves as an excuse to explain the worse evolution of the Spanish market compared to other places, since it discounts it from its price. The only market in our environment that does not discount it is the German market through its DAX index. Both the EuroStoxx50 and the S&P 500 work like the Ibex 35 and reduce dividend payments from their value, so their returns are perfectly comparable.

BME also calculates the Ibex 35 including dividends distributed year after year. In 2015 it closed at 23,602 points and these days it moves at 25,254 points. Its profitability in these six years has been 6.9%, while the normal Ibex 35 has fallen 12.9% in the same period. An index that should be taken into account for an investor who has a Spanish Stock Market fund because the revaluation must be added to those dividends that the fund manager also receives.

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