On Wednesday Spain’s Ibex 35 benchmark stock index fell on concerns of political uncertainty. But the FT's Miles Johnson argues that exposure of the leading Spanish-listed companies to unrest in the region is minimal.
Produced by Filip Fortuna. Filmed by Rod Fitzgerald.
How do you say cognitive dissonance in Catalan? On Wednesday, Spain's IBEX 35 benchmark stock index fell on concerns that the Catalan regional government may attempt to break away from the rest of Spain. Analysts at Societe Generale have advised their clients to stay away from Madrid listed stocks. Opining how a combination of a minority government and the Catalan independence push might prevent Spain from making much needed reforms. Hence, we remain shy of Spanish equities.
Yet in the very same note, the bank's analysts acknowledged that the actual exposure of the IBEX 35 companies to Catalonia is fairly minimal. These two positions are highly contradictory. As it stands, IBEX 35 company generated just 34% of their revenues from inside Spain in 2016 according to research by the Spanish stock exchange the BME.
Not only do Spanish listed companies do a large amount of their business outside of Spain, but they also do almost 50% of their business away from even the European Union, with a combined 46% of revenues coming from outside of the region.
Some IBEX 35 companies are certainly more exposed to the future of Catalonia than others. Banco Sabadell, headquartered in Catalonia, has about 20% of its credit risk in the region, according to SocGen analysis. While BBVA, another bank, has 14%. These are non-trivial numbers, which appear to frighten holders of BBVA shares enough to send them down by over 3% on Wednesday.
Yet a closer look reveals that BBVA actually made just 7.4% of its net attributable profits in Spain last year compared to 10.7% in the United States and 46% in Mexico. It also employs more people in its Mexican division than in the whole of Spain.
Banco Santander, the largest waiting in IBEX last year made twice the amount of underlying profit in Latin America than in Spain. While Zara owner Inditex derived just 16% of its revenues from Spain in the first half of this year.
The moral of this story, if you speculate on political and macroeconomic risk by trading the IBEX 35 index, you will do far better paying attention to what's going on in Mexico than on the streets of Barcelona.