• The Research department of BBVA Corporate & Investment Banking is expecting animprovement in the investment outlook in the fixed income and equity markets inSpain, despite the current cyclical weakness
  • The markets are discounting a greater probability of an orderly exit from thecrisis and a normalisation in the funding costs of the economy
  • The progressive improvement in corporate profitability adds visibility to a newbullish cycle in Spanish equities
  • In 2013 corporate results are going to start to improve, and the Ibex-35 couldreach 9,400 points by the end of the year

The Research department of BBVA Corporate & Investment Banking is expecting an improvement in investment prospects in Spain, despite the current weakness of the economic cycle. The key to this change in trend is to be found in the greater commitment of both Europe and the ECB to the euro and the growing level of confidence that Spain will be able to correct its structural imbalances and get back on the right path in terms of growth.

Banking believes that the financial markets' valuation of Spain has changed radically, as has been demonstrated by the fall of 250bp in the risk premium and rally of more than 40% in the equity markets since July 2012. This change in trend has occurred at the same time as bad newsflow has continued to emerge regarding economic growth and employment. This apparent contradiction can be explained by the fact that the markets take for granted that the risk of a rupture of the euro has been surpassed and are discounting a greater probability of an orderly exit from the crisis with a gradual correction in Spain's imbalances.

BBVA CIB believes the markets are valuing very positively the deleveraging process and the improvement in corporate competitiveness, the commitment to fiscal consolidation, the restructuring and recapitalisation of the financial system and the easier and cheaper access for the Spanish companies to the capital markets. From September to February 2013 Spanish companies have issued EUR14bn, compared with the EUR2bn issued between March and June, which indicates a change in trend that will probably continue in the coming months.

This new situation has only been partially reflected in asset prices, which in turn signifies an excellent investment opportunity in the fixed income and equity markets, as was highlighted in the meetings held by BBVA's Corporate & Investment Banking team with institutional investors in recent weeks. 


Spanish equities are beginning a new positive cycle

BBVA Corporate & Investment Banking believes that Spanish equities are beginning a new bullish cycle. Event though there are still many risks, the Global Markets area of BBVA is optimistic thanks to the moderation in the risk premiums, corporate access for funding through the capital markets under more favourable conditions, the balance sheet deleveraging and the progressive improvement of the corporate results. These factors have led us to think that 2013 will be a year of transition in terms of valuation for the Ibex- 35, and consequently we believe investors should look beyond 2013 and take 2014 as a reference and carry out a normalisation exercise on the profits of the most domestic and/or cyclical companies.

Our long term outlook for the Ibex-35 is one of normalisation in corporate profits, which should rise from the current level of 5% to between 12%-14% in the coming years, far more in line with the historical average, although still a long way from the 19% registered in 2006. This improvement will arise thanks to the increase in international sales, capex controls, improvement in operating margins, reduced financial costs and lower bank provisions.

The price target of BBVA CIB for the Ibex-35 by the end of 2013, based on our estimates for earnings per share growth in 2013 and 2014 and a risk premium close to its historical average is 9,400 points, which implies an increase in value of 15% in 2013.



BBVA Corporate & Investment Banking

Tel. +34 91374 33 00



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