Perception of the Spanish crisis worse than reality, says Invesco

The perception of the Spanish crisis is worse than the real economic situation of the country, according to the Henley-based European equity team at asset management firm Invesco.

The need for fiscal consolidation, for the restructuring of the banking sector, as well as long term structural problems, are likely to be a pose a significant challenge for the Spanish government in the short term, and concerns over Spain’s debt and banking crisis have driven stock market valuations to lows since 2003.

With Spain’s IBEX stock market index trading at a significant discount to its long-term average, analysts at Invesco found attractive investment opportunities in the stocks of well-managed, successful companies which are being unfairly punished for being domiciled in Spain.

According to the company, much of the Spanish government’s reform agenda has been ignored by the market.

“The raft of reforms introduced this year highlights the government’s desire to tackle long-standing issues whilst addressing market concerns,” said Joel Copp-Barton, European product director at Invesco Perpetual (pictured).

Reforms include tightened control mechanisms for monitoring and enforcing regional governments’ expenditure, and measures to make the labour market more flexible, reduce bureaucracy and help business start-ups.

According to the director, the announced EFSF/ESM credit line of up to €100bn is a good step in the right direction.

“While short-term pressures remain, we believe that the successful delivery of reforms will provide a better platform for growth in the medium term and we see a few early encouraging signs that some of the much-needed rebalancing of structural imbalances has started,” said the asset manager.

Moreover, several factors could provide some partial protection to the economy.
In May, a new fund was put in place for the country’s regions to pay out in full money owed to suppliers.

“The newly created Fund for the payment of creditors (Fondo para la financiacion de los pagos a proveedores) should provide a liquidity injection into the economy, equivalent to roughly 3.5% of GDP. At the same time there are signs that the very negative contribution to GDP from construction is starting to subside,” Invesco said.

Spanish exports, which accounted for 30% of GDP in 2011 on a standalone basis, could also generate some incremental growth.

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