Refile: GRAPHIC-Spain's snap election: Five questions for markets
14/07/2023 15:24
(Refiles to clarify June 23 date of election in para 1)
July 14 (Reuters) - Spanish voters head to the polls on
July 23 in a snap national election unlikely to produce a
working majority for any single party, heralding uncertainty for
markets.
Polls predict the conservative People's Party (PP) will
defeat the ruling Socialist Workers' Party (PSOE) but will
likely need support from the far-right Vox to form a government.
The country's fiscal policy, banks and green energy
transition are in focus, and any protracted political deadlock
could dent Spanish stocks .IBEX up 15% so far this year.
Here are five key questions for investors.
WHAT ARE MARKETS WATCHING?
How quickly a new government can be formed. In 2019, it took
current Prime Minister Pedro Sanchez two elections to form an
administration.
"The Spanish market, like all equity markets, hates
ambiguity," said Steve Smith, Invesco European equities fund
manager.
ING economist Wouter Thierie said prospects of more
political uncertainty were a concern, "although that is not my
base case."
Georgios Leontaris, chief investment officer EMEA at HSBC
Private Bank, said post-election discussions on the budget and
taxation mattered for bond markets.
The Spanish/German 10-year bond yield gap is at 104 bps
DE10ES10=RR , little changed from where it stood when Sanchez
called the July 23 election in late May, and more stable
recently than Italy's and Greece's.
WHAT DOES THE ELECTION MEAN FOR THE ECONOMY?
Spain's economy has held up relatively well but is slowing
from a post-pandemic rebound. The government forecasts 2023
growth of 2.1% versus 5.5% last year.
A slowdown means Spain's high debt of above 100% and deficit
of 4.8% of GDP are in focus, and drawn out talks to form a
government could slow the progress of fiscal reforms and worsen
its finances.
ING's Thierie said the next government would have to tackle
Spain's high debt, noting that tighter EU fiscal rules come into
force in 2024.
WHY IS SPAIN'S GREEN TRANSITION IN FOCUS
With Spain getting drier and hotter, energy has been a major
election topic and the two main parties have different views
about how to decarbonise the economy.
Sanchez's government upped its green energy target,
proposing that renewables generate 81% of electricity by 2030.
The opposition PP wants to extend the life of nuclear plants
beyond their 2027-2035 closure window. If this comes with
operator revenue guarantees, it would be well received by
utilities, JPMorgan said.
Brokerage Renta 4 said a PP proposal to introduce a fee on
renewable energy projects would be negative for the sector's
firms.
WHAT ABOUT THE BANKS?
Investors are watching what happens to a two-year, 4.8% levy
approved in December on banks' net interest income and net
commissions above 800 million euros ($880 million).
Bosco Ojeda, head of small and mid-cap research at UBS, said
the PP could favour an early end to the tax, intended to raise 3
billion euros ($3.3 billion) by 2024.
"It's quite likely the levy could be removed, (though) maybe
not immediately ... and that could be seen as a positive for
banks," Ojeda said.
An index of Spanish bank stocks is up almost 20% this year.
.IBEXIB
ANY IMPLICATIONS FOR THE EUROPEAN UNION?
Potentially. Spain just took over the six-month rotating EU
Council presidency and legislation such as new fiscal rules
needs approving.
Federico Santi, senior analyst, Europe at Eurasia Group,
said the elections would "interfere" with Spain's EU presidency
and limit its ability to effectively steer the EU agenda.
"A likely change in government could spell trouble for
several measures...," he said. "Environmental legislation is the
most at risk."
($1 = 0.9072 euros)
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Spanish debt more immune from shocks https://tmsnrt.rs/44NMYKV
Spain_elections https://tmsnrt.rs/3NQ9oUQ
Sources of Spanish electricity in 2022 https://tmsnrt.rs/3rqWjdh
Levy burden on Spanish banks https://tmsnrt.rs/3OeENlq
EU fiscal rules put on hold since pandemic and set to change
https://tmsnrt.rs/3Odm2yJ
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(Reporting by Sam Indyk, Alun John and Dhara Ranasinghe in
London and Matteo Allievi in Gdansk, compiled by Alun John,
graphics by Kripa Jayaram, Pasit Kongkunakornkul, Sumanta Sen
and Vineet Sachdev, editing by Dhara Ranasinghe and John
Stonestreet)
((alun.john@thomsonreuters.com;))