LatAm Boost Spurs Buying at Spain Funds Targeting Santander

  • Investors buy up the stocks as worries over Latin America ease
  • Telefonica, BBVA, Gamesa are also benefiting from the rebound

Stock investors are starting to warm up again to Spanish companies exposed to Latin America.

As pessimism about emerging markets eases and their equities rebound, Spain’s fund managers have boosted holdings in firms most exposed to South America to the highest since October. Banco Santander SA and Telefonica SA, which get at least 40 percent of their revenue from the region and sank more than 13 percent last year, are among favorites, with investments reaching their highest levels in at least seven months, data compiled by Bloomberg show.

“Emerging markets have reached a floor,” said Alberto Espelosin, who manages an $88.5 million equity fund at Abante Asesores Gestion in Madrid. “Some Spanish companies like Santander, Telefonica and BBVA got hit so hard on their Latin America exposure that they’ve become attractive. They still have a wide margin of gains left.”

Espelosin is among those who have boosted holdings in the shares, buying Santander and Banco Bilbao Vizcaya Argentaria SA as they reached their lowest valuations since 2012 last month. Even after regaining more than 20 percent, the lenders still trade below 10 times estimated earnings, compared with 13.4 for Spain’s benchmark IBEX 35 Index and 14.9 for the regional Stoxx Europe 600 Index.

The waning worries about Latin America are allowing for the Spanish stock market to post one of Europe’s best performances in the rebound. The IBEX 35 has rallied 17 percent since last month’s low, recovering about a third of its losses from the April high. While South America’s economy is forecast to slow down for a second year, economists project an expansion of 2.2 percent in 2017, the most since 2013 and more than the euro area.

Funds with more than $50 million that focus on Spanish stocks have increased their share ownership in companies getting more than 40 percent of their sales from Latin America by more than 5 percent since the end of January. Santander accounts for half of the investments, BBVA and Telefonica for about 24 percent and 22 percent, respectively, and wind-turbine maker Gamesa Corp. Tecnologica SA for 3.6 percent, according to data compiled by Bloomberg.

More broadly, a Morgan Stanley index tracking European companies with high revenue from South America has climbed more than the Stoxx 600 since the February low.

For Kevin Lilley, a fund manager at Old Mutual Global Investors in London, it’s still too soon to invest in Spanish equities. His main concern isn’t Latin America. It’s the political turmoil in Spain, where party leaders have yet to agree on a new government after December’s inconclusive elections.

“We don’t know what the political complexion of the new government will be,” Lilley said. “It’s more of a concern what’s going on domestically than what’s going on internationally. Until we have more clarity, we’re maintaining an underweight position.”

Avantage Capital EAFI’s Juan Gomez Bada is betting the exposure to South America will be a boon for Spanish stocks this year.

“Latin American stock markets have recovered,” he said. He manages a $5.7 million fund at Avantage Capital EAFI in Madrid. “Last year, the deterioration of economic perspectives in the region dragged down the IBEX and caused it to significantly underperform. This year, we think the opposite will happen and that Latin America will actually help.”

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