Stock markets, and the Spanish IBEX 35 in particular, suffer sharp losses once again. This comes in same week that the Spanish National Securities and Exchange Commission (CNMV) lifted the ban on short positions. According to Alberto Matellán, Chief Economist at MAPFRE Inversión, “there is no longer a negative feeling about Spain, but there is uncertainty in general.” He says that, while it is true that Spain has greater exposure to LATAM and that the banking sector, which was hit especially hard this week, has more weight in the index “there is a great deal of volatility, because what is being weighed today won’t necessarily be weighed tomorrow.”
Matellán believes that the stock markets have seen such significant moves because of the uncertainty of the future scenario. “One thing that we all agree on is that the post-lockdown recovery process will be slow, in other words, it is going to take time to recover to pre-crisis levels of activity,” explains the Chief Economist at MAPFRE Inversión. In particular, two factors are influencing consumption. The first of these is unemployment and the resulting impact on income—one of the variables with the longest post-crisis recovery times—and the second is the lack of trust, the prudence.
Banks are registering sharp declines on the stock market by sector. According to Matellán, they are being penalized by the fact that some analysts are deducting defaults as a result of the crisis, further compounding the impact already suffered by income statements due to declared forecasts. Furthermore, there is also a scenario with minimum interest rates and a stringent regulatory environment. “This crisis accelerates the need for business change,” says Matellán. But even so, he believes that “all of these factors are already in place.”
There is also considerable uncertainty surrounding the tourism industry. “Tourism will still exist, but it will look different. We aren’t sure what going to the beach, catching a flight, visiting a museum and many other activities will entail.” Faced with this situation, investors have a choice of two strategies: “Wait and see how this new type of tourism is going to be defined and then analyze which companies come out on top; or, if we’re more aggressive, we can invest now in more agile companies, able to adapt to whatever the future holds. But this needs to be carefully analyzed and followed by active management, which would become even more important.”
Matellán therefore continues to believe that, with this persistent uncertainty, every recommendation needs to be tailored to each investor’s profile and must always have consideration of the long-term. But he is concerned about the weight of some—mostly American—companies on the indices. “It would be wise to be prudent when it comes to big monopolies, when these companies are attaining unprecedented index weights, you have to get what is being deducted down on paper. There are very aggressive overvaluations and profit projections that may be affecting half the index,” he concludes.