The Ibex 35, the main index of the Spanish stock market, has closed the session this Monday with a decrease of 0.29% to 9,543.5 points, given the uncertainty that threatens the country after the electoral result this Sunday, in which the polls have presented a country divided into two halves with serious difficulties that no one can be sworn in as president.
The value that has fallen the most is Endesa, which has fallen by 2.75%, followed by Indra, which has fallen by 2.05%; Rovi, 1.43%; AENA, 1.42%, and IAG, 1.36%. Iberdrola has fallen by 0.48%, while the banks have also registered drops in value: BBVA has lost 0.11%; Santander, 0.24%; CaixaBank, 0.55%; Banco Sabadell, 0.76%, and Bankinter, 1.23%. Both energy companies and banks are among the values that have fallen the most in the session, given that since an imminent change of government is not intuited, it is not expected that the extraordinary tax on these companies will cease to be applied in the short term.
Although the elections show an uncertain outlook, it must be taken into account that it is common for the Spanish stock market to fall on the Monday after the elections. In fact, this has happened in nine of the last ten general elections held in our country. Specifically, in the last of 2019, the Ibex 35 dropped 0.06% at the end of the session.
The biggest drop occurred after the 1996 elections, in which the Popular Party won, with a drop of 5.22%, followed by the one that occurred after the March 2004 elections, in which the PSOE emerged victorious, and when the Ibex dropped 4.15%.
“The Ibex will accuse political uncertainty. The General Elections held yesterday 23J have resulted in what seems to be a complicated situation, which could translate either into a weak government or a repetition of elections. A result that will not be well received by the market, which anticipated an easy formation of a government and which now seems to face a blocked Parliament and months of political instability,” Renta 4 analysts warned first thing in the morning.
These experts, however, warn that the most relevant for the economic world this week are not the election results, but the monetary policy meetings of the Fed in the United States (on Wednesday) and the ECB in the Eurozone (on Thursday), from which further increases in interest rates will foreseeably come, and also the publication of business results of many companies in Spain.
Franco Macchiavelli, head of analysis at Admirals Spain, points out that “the Ibex's rise of more than 400 points since May seemed to reflect a victory for the more pro-business right, however, yesterday's result could be classified as the least desired economic result”. He warns that “the left could seek the support of the pro-independence parties, but the price of their support is high, which could lead to unpleasant transfers and collateral results, such as those that occurred in the march of many companies such as Sabadell, Naturgy or Colonial, which took their offices out of Catalonia. Therefore, opening talks with Catalonia could bring more uncertainty to the markets.”
The market expects electoral repetition
Barclays experts believe that the most likely is an electoral repetition: “In our opinion, it is most likely that an indecisive parliament will be formed and new elections will be called, with Pedro Sánchez as interim prime minister until new elections are held at the end of 2023 or beginning of 2024.. This scenario would likely cause prolonged uncertainty and could delay the disbursement of European Next Generation EU funds as a result of the parliamentary deadlock.”
“Most likely, new elections will be held, at the end of 2023 or beginning of 2024, and that the PSOE cabinet will remain in office until then.. This would be reminiscent of the 2015 and 2019 elections, which were also inconclusive”, agree analysts from the British consultancy Capital Economics, who believe that “the impact of the current political uncertainty on the economy will be negligible”.. According to their forecast, the Spanish economy continued to perform better in the second quarter, helped by the rebound in tourism and lower inflation, although they see the recovery as likely to lose steam in the second half of the year, as the tightening of monetary policy weighs on growth.
Dario Messi, fixed income analyst at Julius Baer, explains why the market may react with turbulence to the electoral result, including the risk premium that could stop falling: “The formation of the government will be a long and complicated process, and it is possible that the elections will be repeated. Social policy has been in the spotlight during the electoral campaign; As for the economic agenda, a new center-right government would be expected to focus on medium-term fiscal consolidation and tax cuts, while another term for the current government implies a continuation (…) A still-possible change in leadership and increased attention to fiscal discipline could further support the current momentum to tighten sovereign debt spreads, which is now likely to see a pause amid political uncertainty triggered by the elections,” he warns.