Photographer: Angel Garcia/Bloomberg

Catalan Vote Lures Value Hunters Eyeing Spanish Stock Bounce

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What’s in a vote?

For bargain hunters, it’s the catalyst that’s drawing them to Spanish shares. The IBEX 35 Index, having lost 8 percent since a May peak, is trading near its cheapest relative to the Euro Stoxx 50 Index in more than seven years. With elections in Catalonia on Thursday seen unlikely to give a clear majority to the separatist bloc demanding the region’s secession, bulls say it’s time to buy.

Uncertainty over the future of the country’s biggest regional economy has derailed a rally that in May had made the IBEX 35 Europe’s top-performing major national benchmark for 2017. While a Catalan vote on independence in October roiled markets, value investors are now eyeing the country’s economy, which has grown faster than the rest of Europe every quarter since 2014.

“It’s all a sideshow to what is a very powerful economic expansion in Spain,” Atul Lele, who helps oversee $5 billion as chief investment officer of Deltec International Group, said by phone from Sydney. “Uncertainty in Catalonia has had the potential to stall credit growth, but it’s opened up an opportunity to invest in Spain, and in particular its commercial banks.”

The political infighting has weighed on CaixaBank SA, the largest Catalan lender, which recently moved its legal address to Valencia. The shares are on track to drop for a fifth month, the longest streak of declines since a widespread banking selloff at the start of 2016. Banco Sabadell SA, which was up as much as 47 percent for the year in July, has given up about half of those gains.

Strategists at Natixis SA are also bullish on the IBEX 35, highlighting CaixaBank and Banco Sabadell as key bets. Even if Catalan separatists prevail in tomorrow’s vote, they seem more open to negotiating institutional changes with Madrid in a “calmer environment” compared to the messy aftermath of October’s independence vote, according to Natixis.

“This would be good news for the markets, of course, but not as good as if the pro-union front were to win, which is now a plausible scenario,” Natixis strategists Sylvain Goyon and Thomas Zlowodzki wrote in a Dec. 18 note. The IBEX 35 could gain 7 percent if the unionists win a majority, they say.

— With assistance by Blaise Robinson

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