Investors stick by Spain despite Catalan crisis

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Investors are sticking with Spanish equities and bonds despite the Catalan parliament declaring independence last week.

The Spanish benchmark index, the Ibex, fell 2.1 per cent on the news on Friday afternoon that the regional parliament had defied Madrid and declared independence. The euro fell slightly against the dollar.

Spanish prime minister Mariano Rajoy has announced fresh elections for the region in December as his government uses Article 155 to oust the Catalan parliament.

Under threat of arrest for betraying the Spanish constitution, Carles Puigdemont, leader of the pro-independence coalition, has fled Spain for Brussels. International leaders from the EU and beyond have not recognised the Catalan independence.

Columbia Threadneedle European equity manager Mark Nichols says they added to Spanish fashion brand Inditex on the political uncertainty.

“The prospect of Catalonia leaving Spain does not change the prospect of Zara opening a new store in the US. But it is listed in Spain and ETFs have grown as a percentage of the market.”

Invesco Perpetual fund manager and senior credit analyst Julien Eberhadt says they’ve stuck with their exposure in Spanish banks, including Sabadell and Caixa, which had been headquartered in Catalonia.

“In order to ease some fears for depositors they announced they were moving headquarters to other areas in Spain and we take some comfort from that,” Eberhadt says.

Fitch said last month it was prepared to take action on ratings if hostilities escalated.

Eberhadt adds that overall Spain has been an “outstanding performer” among eurozone economies. The Invesco Perpetual Global Financial Capital fund also has exposure to Santander and BBVA.

Spain delivered full year growth of 3.2 per cent in 2016 – almost double the eurozone average of 1.7 per cent.

Andrew Etherington, manager of the Axa Global Income Generation fund, says markets expect December elections to deliver a positive result.

Paris-based Etherington says secessionists have made a “big statement” but have possibly “overreached”.

“I would be fairly confident that despite some missteps from Madrid people in Catalonia want to be a part of Spain and a part of Europe and not a small player on the edge of a country.”

Puigdemont says his centre-right separatist party will participate in the December elections.