Photographer: David Ramos/Bloomberg

Catalan Vote Concern Sends Spanish Stocks Into Bear Market

Updated on
  • IBEX 35 is worst-performing in western Europe this month
  • Catalan independence would be `disaster' for Spain, MPPM says

Spain’s economy is forecast to grow faster than almost all other euro-area countries. That’s not helping its companies.

Concern that Sunday’s Catalonia election may lead to the region breaking apart from the rest of the country has helped drag the benchmark IBEX 35 Index down 9.4 percent this month through yesterday, the most among all western-European markets. On Thursday, the gauge closed 22 percent below the five-year high reached in April, before rebounding 2.5 percent Friday.

Investors who bought Spanish stocks hoping to reap the benefits of a recovering domestic economy are now faced with the most volatile market since 2012. If pro-independence parties succeed, the nation will lose its biggest regional economy, putting growth estimates at risk.

“Any disturbance from nationalism will make investors refrain from entering the market,’’ said Guillermo Hernandez Sampere, who helps manage about 150 million euros ($168 million) as head of trading at MPPM EK in Eppstein, Germany. “Catalonia is a very strong region in Spain, and if they separate, it would be a disaster for the rest of the country.’’

A poll by newspaper El Mundo published Monday showed separatists securing a majority of seats with the help of anti-capitalist party CUP, but failing to win a majority of the votes. With Catalonia contributing to about a fifth of Spain’s economic output, a breakup would threaten a recovery in the nation, which is forecast to grow more than 2.2 percent each year through 2017.

Twice as Much

The IBEX 35 closed yesterday at its lowest level since December 2013, with a valuation of 13.9 times estimated profits, lower than the 14.6 multiple for the Stoxx Europe 600 Index. Banco de Sabadell SA, one the largest companies based in Catalonia, has plunged 16 percent this month, almost twice as much as the Spanish gauge.

Chances of Catalonia becoming a separate state are so slim that it shouldn’t affect portfolios of long-term investors, says Banca March strategist Alejandro Vidal.

“When you look at Spanish stocks’ performance with a two- to three-year horizon, Catalonia elections will have no effect,” said Vidal, whose firm oversees 12.6 billion euros. “We haven’t made any changes to our allocations.”

Credit Suisse Group AG upgraded Spanish stocks to overweight, saying they are oversold. An economic recovery is well advanced and political risks have been exaggerated, according to a note from the brokerage today.

Nervousness surrounding the vote also comes on top of increasing worries that emerging economies are slowing. Banco Santander SA and Telefonica SA, among Spain’s biggest companies, rely on Latin America for nearly half of their revenue.

That’s all added to Spanish stock volatility. A measure of price swings for the past 30 days has jumped 15 percent this month, more than the 10 percent increase for the Stoxx 600.

“A movement toward independence would come with a lot of volatility,’’ said James McCann, an economist at Standard Life Investments Ltd. in Edinburgh. “Long term, it would be a structural problem in terms of Spain losing an important part of its economy. Short term, it creates a lot of noise and friction around that process, so it’s a concern for markets.’’