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Markets already celebrating start of Spanish recovery

The Spanish economy is bidding farewell to the most prolonged recession in its recent history.

Results for the third quarter of this year will mark the second time that quarterly Gross Domestic Product (GDP), the statistical synthesis of growth, has pulled out of the red since the current economic crisis began.

But this time, unlike in 2010, the markets are working in its favor. Investors see recovery on the horizon, even if most of the country remains mired in massive unemployment, debt, budget cuts, and salary reductions, and is still a long way off from noticing any tangible improvements.

Experts agree that the road will be a long one, but that recovery is always announced by the markets and the first step has been taken. The world of finance has been piling on the enthusiasm, from the “¡Viva España!” of the latest Morgan Stanley report to the assertion that “Money is coming in from all sides for Spain” by Santander Chairman Emilio Botín. There is a real basis for the investment in Spanish stocks and bonds. And most importantly, it has real consequences.

The Spanish Ibex 35 index closed above 10,000 points this week, accumulating a 23 percent value rise so far this year, the greatest hike in any Western stock exchange. The risk premium — the added profit investors demand for holding Spanish bonds versus the benchmark German bund — is hovering around 240 basis points, down from more than 600 points in the summer of 2012. Meanwhile, the Treasury is paying less than one percent for borrowing money on one-year maturities, a similar price to pre-crisis times. Spanish banks and businesses are launching successful capital increases and issuing shares. And some foreign funds are buying up property portfolios.

“For the Treasury to be able to borrow at one percent is excellent news,” says José Antonio Herce, an analyst at Analistas Financieros Internacionales (AFI), who also underscores “the European Commission’s approval of an end to the bailout program for the Spanish banking sector.” Herce stresses that “market data is objective, and it would be good for it to remain that way, because the real foundations of the economy are not going to improve noticeably in the coming quarters.”

The incipient enthusiasm will be tested when the European Central Bank assesses the quality of European bank assets, and there are still pending issues such as the sale of nationalized lenders like NCG Banco and CatalunyaCaixa.

But this time, analysts believe that “Spanish banks, following their weight-loss diet, are now in a better position than their European colleagues,” in the words of Tristan Cooper, an analyst at Fidelity. “The shock of mistrust that began in 2011 — the notion that the euro was going to break apart because of Spain — all that has disappeared from investors’ perception,” says Josep Oliver, a professor at Barcelona’s Autónoma University.


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