Spain is widely known for its artists, bullfights, flamenco music and dance, fantastic golden beaches and lots of sunshine. However, these are not the only things that continuously attract hundreds of thousands of investors and traders from all around the world each year.
Keep reading this article to find out why you might want to add the Spanish stock exchange to your list of investment destinations in 2019.
The economy of Spain: the good, the bad and the ugly
In March 2019, the Bank of Spain published its predictions for the Spanish economy to 2021 and warned that everyone should be prepared for a potential downturn. Continued GDP growth is anticipated, however, a high degree of uncertainty regarding the future orientation of economic policy in the country and adverse global events, such as persisting vagueness over Brexit, could negatively affect the GDP growth forecast.
On the other hand, while exports have run out of steam, domestic demand has compensated this effect due to low inflation, job creation, higher pensions and a lower household savings ratio. In its report, the central bank stated that despite a global slowdown, particularly in the eurozone, the Spanish economy remains notably dynamic.
Spanish GDP is expected to grow at a gradually slower rate of 2.2% in 2019, 1.9% in 2020 and 1.7% in 2021. The bank also predicts small reductions of the public deficit, which is expected to fall from 2.7% to 2.5% of GDP in 2019.
Spain has a capitalist mixed economy, which is one of the world’s largest by purchasing power parity and the thirteenth-largest by nominal GDP. It is also the sixth-largest in Europe behind Germany, UK, France, Italy and Russia based on nominal GDP statistics. Additionally, in 2018, Spain was the sixteenth-largest importer and the eighteen-largest exporter in the world.
Following the financial crisis of 2007 and 2008, the economy of Spain went into recession, entering a period of negative macroeconomic performance. Compared to the US and the EU’s average, the country entered the crisis a bit later, as its economy was still growing by 2008. The economic boom of the 2000s came to a halt, leaving more than a quarter of the country’s workforce unemployed by 2012. In total, the Spanish GDP contracted by 9% during the 2009-2013 period.
However, in 2013, the economic situation began to improve. By this time, Spain managed to achieve a trade surplus after over 30 years of running a trade deficit. The surplus has been strengthening ever since.
In 2015, Spanish GDP grew by 3.2% – a rate not seen since 2007, making it the highest among the largest EU economies that year. In only two years, the economy of Spain had recovered 85% of the GDP lost during the recession. Strong GDP growth was also registered in 2016, with the country growing twice as fast as the eurozone average. This is why the country’s economy is expected to remain one of the best-performing major economies in the EU in the foreseeable future.
The economic recovery has reduced Spain’s borrowing costs, leaving inflation at rather modest levels. However, in spite of relatively sound economic institutions and transparent judicial and regulatory systems, the indebted public sector still inhibits growth.
According to the 2019 Index of Economic Freedom, Spain’s score is 65.7, making its economy the 57th freest in the world.
Today, the country is a member of the European Union, the World Trade Organization and the Organization for Economic Co-operation and Development. Spain implements several EU-directed non-tariff trade barriers, including technical and product-specific regulations, subsidies and quotas. Most sectors are open to foreign investment. The overall condition of the financial sector continues to improve.
What is the Madrid stock exchange?
The Madrid Stock Exchange, also known as the Bolsa de Madrid, is the largest of the country's four regional stock exchanges located in Valencia, Bilbao and Barcelona. Presently, Bolsa de Madrid is owned by Bolsas y Mercados Españoles (BME), the Spanish company that deals with the organisational aspects of the all the Spanish stock exchanges and financial markets, offering clearing and settlement of operations.
The Madrid stock exchange was created in 1831, making it one of Spain’s oldest financial institutions. It has played a decisive role in the history of the country, alternating long booming economic and industrial cycles with others characterised by downturns and crises – but always serving as a true barometer of Spain’s economic trends.
In 1993, the Bolsa de Madrid switched to all-electronic trading. Today, trading on the exchange is linked through the SIBE electronic trading platform. It handles over 90% of transactions, with all fixed-income assets are traded through this system.
Speaking of the overall Spanish stock exchange, there were 2,937 companies listed in June 2019. Presently, the total market capitalisation of the equity securities listed on the BME stock exchange is €1,094.65 billion.
What are the Spanish stocks to invest in?
When browsing the Spanish stock market, there is a large variety of stocks to invest in; your choice simply depends on your personal preferences, trading strategies and goals.
If you are interested in renewable energy commercialisation, you can consider investing in Siemens Gamesa Renewable Energy (SGRENe) or Iberdrola (IBE), the world's largest renewable energy operator.
Looking for tech stocks? Check out the industry's giants like Telefónica (TEF) and Indra Sistemas (IDR). You can also have a look at train manufacturers, such as CAF (CAF) and Talgo (TLGO); petroleum companies like Repsol (REP) and infrastructure firms like Acciona (ANA), Ferrovial (FER), ACS (ACS) and OHL (OHL).
If you are not the type of person who is interested in tracking the performance of each individual stock, you can consider investing in the major stock indices. The IBEX 35 is a great example of the world-renowned Spanish index.
Also known as the Spain 35, it is a benchmark tradable index, tracking the performance of the 35 most liquid stocks listed on the Spanish stock market. Founded in 1992, it is a free-float capitalisation-weighted index, with no top weighting limit for one constituent, unlike many other stock market indices. Since its creation, its return has reached 255%, and its average annual return has been over 6.8%.
The IBEX 35 is calculated by BME and reviewed quarterly. At each review, the 35 companies with the highest trading volume in euros over the preceding six months are selected for inclusion in the index.
Between 2000 and 2007, the index outperformed many of its Western counterparts, driven by relatively strong domestic economic growth. The IBEX 35's all-time high of €15,945.70 was reached on 8 November 2007.
How to trade Spanish stocks CFDs
Trading Spanish stocks is rather easy with contracts for difference (CFDs). A CFD is a type of a contract between an investor and a broker to profit from the price difference between the opening and the closing value of the trade.
It is especially favourable when trading international assets, as CFDs offer you an opportunity to go short or long on the market without the need to deal with conventional exchanges, providing greater liquidity and easier execution. It also allows you to trade on margin, offering bigger exposure to the chosen markets.
Moreover, when trading CFDs, you don’t buy the underlying asset, but instead, deal with the buying and selling prices of a given financial instrument to profit from the price difference.
However, as CFDs are a leveraged product, gainings, as well as losses, are magnified.
Browse Capital.com to learn the latest information and trade Spanish stocks CFDs. Learn more about CFD trading with our comprehensive free online courses. You can also check our guides to trading IBEX 35 and share trading to equip yourself with all the needed knowledge.