Spanish Equities Unfazed by Regional Elections, but Bigger Implications Remain
Madrid – The regional elections in Spain on Sunday, where the conservative People’s Party (PP) maintained its power in both Galicia and the Basque Country, had little impact on the country’s stock market. Alberto Núñez Feijóo, the current leader of the PP, had previously indicated that he would not eliminate a windfall tax on banks and energy companies, dampening expectations for major policy changes. As a result, investors in Spanish equities remained relatively unfazed by the election results.
The lack of market reaction to the elections highlights an important shift in the Spanish stock market and carries broader implications. A closer look at the performance of stock market returns in Spain, Italy, and Greece over the past 15 years reveals that politics can have a significant impact on market stability. Greece, in particular, serves as a cautionary example, demonstrating that not every political surprise presents an immediate buying opportunity.
Given the risks associated with political volatility, especially for smaller countries, diversification is a recommended strategy. Combining stocks from across Europe can help mitigate the impact of political events on investment portfolios. Southern European stock markets faced a turbulent decade following the 2008 global financial crisis, grappling with unprecedented challenges, high volatility, and underperformance. However, recent years have shown that patience can be rewarded. In democratic and open societies, politics can become less intimidating over time as economies, policymakers, and voters learn to navigate through trial and error.
For investors, identifying political turning points before they become widely recognized can offer a significant advantage in terms of medium-term outperformance. As politics becomes less influential in the market, stocks in countries like Spain, Italy, and Greece have been showing signs of recovery. Recognizing these medium-term trends is not particularly difficult with the right analysis. In 2019, we predicted the emergence of two major parties in Spain, along with a regional fringe, based on political science and the country’s electoral system. This approach has proven successful in predicting not just election results but also broader market trends.
In summary, the regional elections in Spain had little impact on the stock market due to the lack of significant policy changes expected from the PP. However, the implications of this relatively calm market reaction are significant. Political events can have long-lasting effects on stock market performance, as demonstrated by Greece’s turbulent history. Diversification and a focus on medium-term trends can help investors navigate the uncertain political landscape and achieve outperformance in the long run.
Original Story at www.dws.com – 2023-07-28 04:44:30
Comments are closed.