Spanish stocks gain after election

Spain’s stocks rose just after last Sunday general elections, which saw the conservative Popular party win the 33% of the vote.

Investors who support the conservative party’s economic reforms were encouraged by the better than expected outcome and the Ibex 35 rose about 3%, Reuters reported.

Stock-listed bank Bankia saw a 13% increase, while Caixabank gained 5.8%. Meanwhile, Spain’s 10-year government bond yield slid 10 basis points.

The center-right Popular party improved its relative majority by 14 seats when compared to last December elections, from 123 to 137.

The far-left party (Unidos Podemos) didn’t improve its position in terms of seats and lost in terms of number of votes. It remains the third party behind the center-left (PSOE).

Thus, polls suggestions of a stronger showing for the far-left didn’t materialise, ruling out market’s worst scenario of Podemos-dominated government.

“That’s positive for Spanish risk and markets,” said Giovanni Zanni and Anais Boussie, from Credit Suisse European economics department.

But the Spanish political situation is not clear or strong yet.

“If, as we expect, the center-right will be able at some point in the coming months to form a (minority) government, the latter will still not be an ideal or inherently stable situation, especially in light of a potential period of turmoil ahead at the European level,” Credit Suisse said.

“Besides, the Socialists will ask for current PM and leader of the PP Mariano Rajoy to resign in order to gain their support to the minority government – this is a condition that might require a long negotiations, given that Rajoy is the effective winner of these elections,” it said.

Credit Suisse said Spanish elections suggest that the pundits suggesting that extremism is growing in Europe and will grow further after Brexit are being proved wrong, for now.

There is “contagion in reverse” if anything, back towards traditional parties on the back of uncertainty, it said.

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