Retail sales growth was positive in September
Evidence of a bottom in the Spanish business cycle is mounting, as the Spanish consumer had a positive contribution last month. This datapoint joins recent positive GDP growth and falling unemployment in the country. Spanish stocks have been a top performer in the last year, as investors have been anticipating a reversal in economic trends.
Granted, this reading was helped by an easier “comp” (the past period over which the most recent period is judged), as a consumer tax increase last September lowered sales. Retail sales will continue to have easier comps for the next year until the tax increase rolls over, and the lower bar is bullish for Spanish stocks going forward.
The rally in Spanish stocks has been sentiment-driven, which poses unique risks
Much of the run-up in Spanish stocks over the last year has happened without much improvement in the Spanish economy. The only real positive point in the Spanish economy has been export growth. These two points make Spain particularly vulnerable to an exogenous shock, either from global investor sentiment or from the economies of its trading partners. This is especially true, as the iShares Spain ETF (EWP) is particularly concentrated in financial stocks that are levered to the global financial system.
Even so, the trend in Spain and other European countries has been positive. EWP is up 40% in the last year and 28% year-to-date, beating the S&P500 (SPY) over both timeframes. Spain’s performance in 2013 is a good example of why equity investors in the US shouldn’t ignore international opportunities in developed market countries.
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