Ibex 35 is nearing a milestone, marking the strongest annual revaluation in 14 years. The Spanish index advanced by 22.88% to a total capitalization of 651.381 billion euros. Earlier years saw increases of 29.84% in 2009 and 31.79% in 2006.
What is driving these gains? A key factor is the cooling of inflation amid a global economic slowdown and higher European rates, alongside central banks signaling that price pressures may ease. The Federal Reserve signaled a trajectory of rate cuts in 2024, more assertively than the European Central Bank, contributing to a favorable global rate environment for equities.
Analysts note that the Ibex 35 has reversed a years-long bearish trend that dated back to the 2007 peak. Back then, some companies diluted shareholders by issuing new shares as dividends and engaging in secret capital increases, taking on heavy debt and leaving the financial sector burdened. Today, the tide has turned. Companies are pursuing share buybacks and reducing treasury shares, a shift highlighted by portfolio manager José Lizán of Quadriga Asset Managers, who points out that fewer shares in circulation can lift earnings per share and shareholder value.
Another challenge for the Ibex 35 in recent years involved Latin American currencies, notably the Mexican peso and the Brazilian real. Now, both Mexico and Brazil are enjoying a moment of strong economic performance. A surge of dollars linked to the relocation of American manufacturing from China has flowed into Mexico, while Brazil has maintained a current account surplus and has been easing interest rates while keeping inflation under control, according to Lizán.
The Madrid Stock Exchange’s premier index has hit several milestones, including surpassing 10,000 points in 2023 and posting records for companies like Ferrovial and Inditex. Some analysts anticipate corrections in 2024, especially in February, which can be affected by seasonality, profit-taking, or pre-earnings adjustments that might weigh on US markets. Yet, a resilient backdrop and cushions in the indices could support continued momentum and the pursuit of new milestones, according to Eduardo Faus, a technical analyst at Renta 4.
In 2023, several Spanish stocks stood out with gains exceeding 50%. Notable leaders included Rovi Laboratories at 70.3%, Inditex at 63.15%, ACS at 59%, and BBVA at 56.7%. Aena and Santander Bank also posted gains above 40%. Rovi rose after a difficult 2022, when shares fell about 51%. The company exceeded its own sales and profit forecasts, maintaining a strong forward outlook. Rovi has had a long-standing agreement with the American pharmaceutical firm Moderna since 2020 to market and manufacture messenger RNA products globally except the United States and Canada. The López-Belmonte family-controlled Madrid-based company is engaged in developing vaccines aimed at replacing extended-release injectable drugs for conditions such as schizophrenia or breast cancer.
Inditex’s stock rise reflects a record year for profits and sales. The group, founded by Amancio Ortega, reported substantial earnings in the first nine months and projected annual profits around 4.102 billion euros. ACS also benefited from robust results, with nine-month earnings reaching 576 million euros, up about 20% year over year, aided by contributions from Abertis in the dealership segment.
Banco Santander and BBVA are identified as the banks with the strongest upward potential for Ibex 35 this year, supported by improving net interest margins amid higher rates and the solid performance of Brazil and Mexico’s economies.
Acciona is highlighted as a standout actor, while two stocks in the portfolio have declined by more than 20%, both managed by the Entrecanales family. Acciona Energía fell 21.5% and Acciona dropped 21%. In the smaller set of underperformers, Unicaja declined about 9%, Repsol fell 4.25%, and Red Eléctrica Redeia slid roughly 2%.
In recent months, Acciona Energía faced downgrades from major banks, including Morgan Stanley, Berenberg, and JP Morgan, due to expectations of lower regulated energy production prices, weak Chilean prices, and slower investments in solar projects in the United States and Spain. Financing costs also constrained expansion.
Acciona, the parent company, is moving in parallel within Ibex 35 and controls an 82.6% stake in its renewable energy segment, contributing about 70% of its EBITDA. Nevertheless, the group has secured important infrastructure projects, such as the Casablanca desalination plant in Morocco valued at 800 million dollars and the construction of a highway in Australia valued at 420 million dollars.
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Unicaja remains the Ibex 35 bank with the greatest exposure to the mortgage market. The home mortgage sector has shown a decline over nine months, with October standing out as a weaker month. In October, the average mortgage amount on homes fell by 5.3% year over year to 140,564 euros, while outstanding loan balances decreased by roughly 26.4%, totaling about 4.487 billion euros.
Repsol faced disruptions tied to falling oil prices, with the Brent reference in Europe and the West Texas Intermediate in the United States both retreating around 8% for the period in review.
Citations: Market analysis and corporate updates provided by financial analysts and industry experts.