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Spain 35 forecast: Will the index survive the pressure?

By Alejandro Arrieche

Edited by Alexandra Pankratyeva

12:54, 15 June 2022

Spain 35 forecast: Will the index survive the pressure?
Spain 35 forecast: Will the index survive the pressure? Photo: whiteMocca / Shutterstock.com

Like many stock indices across the world, Spain’s flagship stock index, the IBEX 35 (SP35), has performed negatively so far this year (as of 14 June) as macroeconomic conditions worsen and inflation became a real issue for developed economies.

However, losses have not been as severe as those of other broad-market equity benchmarks such as the American S&P 500 (US500), which has plummeted more than 20% and has entered a bear market territory, or the tech-heavy US Tech 100 (US100) Index, which has recorded a 31% loss so far this year.

What does the future hold for the IBEX 35 Index, and how could the latest decline in American markets affect its performance in both the short and mid term? 

In this article, we assess the latest price action for the index and analyse its top components, sectors and third-party Spain 35 predictions to outline plausible scenarios for the future.

Spain 35 outlook: Will the country survive the economic turmoil? 

There are many challenges ahead for European economies if the US and other countries go into recession.

War on the continent is instilling a cautious tone among investors, especially now that countries in the region are getting increasingly involved in the conflict by supplying weapons, money and equipment for Ukraine to fight the invasion.

“The war in Ukraine, lockdowns in China, supply-chain disruptions, and the risk of stagflation are hammering growth. For many countries, recession will be hard to avoid,” said World Bank President David Malpass.

“Developing economies will have to balance the need to ensure fiscal sustainability with the need to mitigate the effects of today’s overlapping crises on their poorest citizens,” added Ayhan Kose, Director of the World Bank’s Prospects Group.

According to the latest predictions from the International Monetary Fund (IMF), the Spanish economy is expected to grow by 4.8% in 2022 in real terms, excluding the impact of inflation, while prices are expected to rise 5.3%. 

Spain GDP growth vs inflation rate

Spain 35 (SP35) analysis: Technical views and price drivers

The value of the IBEX 35 Index had been on a downtrend before the pandemic began. The health crisis deepened weaknesses. The index has not been able to recover to pre-pandemic levels.

The chart below shows that the index has been making a series of higher lows since it bottomed in March 2020 at around 5,800, and that could be a positive sign. However, since the November 2021 uptick, triggered by positive news on en-masse vaccinations, the index has also made multiple lower highs.

Spain 35 (SP35) Index technical analysis

What these lower highs could indicate is that investors are willing to pay less for the same basket of equities. One reason that could explain this is that market participants expect an increase in interest rates

Higher rates would result in lower valuations for equities as a result of higher risk premiums. They may also lead to lower profitability for highly indebted companies whose interest expenditures could rise.

On 9 June, the European Central Bank announced that it will fully taper its asset purchase programme while it’s also planning to hike interest rates in the region by 0.25% in July. 

The measure comes at a point when the median inflation in the region is expected to hit 6.8% by the end of 2022.

Meanwhile, according to the latest report from Spain’s top financial regulator, the debt-to-equity ratio among non-financial companies within the IBEX 35 stood at 1.02 by the end of the first semester of 2021. This ratio is lower than the 1.12x figure reported back in the first semester of 2020.

What this means is that for every euro invested by shareholders, there’s a euro’s worth of debt. Debt remains a key component for businesses in the country and higher interest rates could have a major impact on their valuation, leading to increased expenditures.

The formation of a symmetrical triangle on the Spain 35 chart might indicate a period of consolidation as market participants are struggling to understand what the future holds for Spanish businesses.

As of 14 June, the value of the IBEX 35 Index has been 5% below its 200-day simple moving average. Momentum indicators have been bearish as the Relative Strength Index (RSI) has been standing at 34 while the Moving Average Convergence Divergence (MACD) has just crossed below the signal line and drifted to negative territory.

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Spread 6.00

Overall, the most relevant area of support down the road could be found at the 8,000 level, meaning that there is a downside risk of 2.6% if the price keeps declining in the next few days.

Spain 35 (SP35) key components: Winners and losers

The energy sector has been the biggest winner in 2022. On the IBEX 35 Index it’s risen 23.5. Repsol (REP) has led the way with a 48.4% year-to-date gain (as of 14 June). With a weight of 4%, this company is a key player affecting the index’s performance.

Aside from Repsol (REP), Solaria Energia y Medio Ambiente (SLR) has also been performing positively so far this year, delivering gains of 25.9%.

The energy sector is preventing the index from falling hard, as other sectors with a strong weight on the index have not been performing as well. 

The worst-performing sector is consumer cyclicals, with a year-to-date loss of 20%. Even though the biggest loser has been leisure products (-37%), consumer cyclicals is more relevant as its weight on the index is heavier. Inditex (ITX), the apparel conglomerate led by Spain’s wealthiest person, Amancio Ortega, has recorded a 20% loss so far in 2022.

On the positive side, hotels and entertainment services have been delivering gains of 18% so far this year, followed by oil & gas equipment and related services at 6.4%.

Individually, nine companies from the 35 have been delivering double-digit gains this year, including some financial institutions like Banco de Sabadell (SAB) and Caixabank (CABK) along with Telefonica (TEF), which is up 16.4%.

Fluidra (FLUI) is down 37.1% year-to-date, followed by Laboratorios Farmaceuticos Rovi (ROVI) at 22.9% and Cellnex Telecom (CLNXe) at 20.4%, as of 14 June.

Spain 35 (SP35) Index performance, 2017-2022

Spain 35 forecast 2022 – 2025

From a technical perspective, as of 14 June, the short-term IBEX 35 forecast was neutral to bearish as the price action has been moving toward a period of consolidation. 

Will the index manage to overcome the gloomy global macro landscape? As of 14 June, several algorithm-based forecasting services gave their estimates for the future value of the Spain 35 Index.

Wallet Investor held a neutral-to-bearish short-term outlook for the index based on an analysis of multiple technical indicators. The average IBEX 35 forecast for 1 July 2022 stood at 8,538.370, resulting in a 4.33% upside potential from 13 April’s closing price of 8,183.32. 

Meanwhile, the site saw the price rising to 8,805.780 by the end of the year. Looking forward, Wallet Investor suggested that the index could gradually move up to 10,134.80 by the end of 2025 and hit 10,958.60 in 2027.

GovCapital had a slightly bearish short-term outlook for the IBEX 35, predicting that its value could drop to 7,971.226 on 1 July 2022. For December 2022, its average IBEX 35 price target stood at 8,123.708, which is close to the current index price, as of 14 June. 

Meanwhile, the site’s Spain 35 forecast 2025 was bullish and pointed to a price of 30,031.42 by the end of the year. Its five-year prediction suggested the index price could average 45,193.49 in June 2027.

None of the providers shared a Spain 35 forecast 2030.

The opinions and Spain 35 forecasts shared in this article should not be interpreted as a recommendation to invest or trade the IBEX 35 Index. Traders are encouraged to perform their own due diligence before making any investment decisions.

Note that algorithm-based predictions can be wrong. Past performance is no guarantee of future returns. Always conduct your own analysis before trading. And never trade money that you cannot afford to lose.

FAQs

Is the Spain 35 index a good investment?

Spain’s benchmark index, the IBEX 35, has been performing negatively YTD (as of 14 June) due to multiple macroeconomic headwinds and recession fears. Whether the Spain 35 Index is a suitable asset for you to trade will depend on your personal risk tolerance and trading objectives. Past performance is no guarantee of future returns. Always conduct your own analysis before trading. And never trade money that you cannot afford to lose.

Will the Spain 35 index go up?

According to the third-party forecasting services Wallet Investor and GovCapital, as of 14 June, the IBEX 35 Index was expected to perform positively in the mid to long term.

Should I invest in the Spain 35 index?

The decision to invest in any financial asset should only be made upon completing your own due diligence. Whether the asset is a good fit or not for a portfolio depends on each trader’s risk tolerance, financial goals, income, employment situation and other variables.

Markets in this article

SP35
Spain 35
11094.4 USD
-62.7 -0.560%
CLNXe
Cellnex Telecom
32.510 USD
-0.16 -0.490%
FLUI
Fluidra
19.26 USD
-0.52 -2.640%
ITX
Inditex
45.20 USD
-0.2 -0.440%
US100
US Tech 100
19526.6 USD
-224.4 -1.140%

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