With the declaration of independence by Catalonia on Friday, the subsequent dismissal of the Catalan regional government by Spain’s central authorities and the announcement of new elections in the Spanish region, the Catalonian crisis has clearly entered a new phase. But will that be one of continuing escalation, or will we see a gradual restauration of the status quo?
The latter option is clearly what markets prefer, and investors seem to look favourably at the developments in Spain over the weekend. Spanish stocks rallied on Monday, led by Catalonia’s two largest banks Banc Sabadell (+4.5%) and Caixa Bank (+3.8%), following the announcement from Madrid that elections would be held in Catalonia on 21 December.
“I think the news of new elections is positive. The fact that the pro-independence parties have said they will participate is an indication they are willing to play by the rules,” Marta Campello, a fund selector at Abante Asesores, a wealth manager based in Madrid, told PA‘s sister title Expert Investor.
Independence support drops
Already on Thursday, when Expert Investor organised an investment forum for Catalan investors in Barcelona, it became clear reality was sinking in, also with fervent supporters of independence.
When asked, 40% of those polled were in favour of independence from Spain. That number dropped to a mere 30% when they were asked whether Catalonia would actually be an independent country in five years’ time. These numbers were confirmed by later polls published by the Spanish media, which put support for independence well below 50%.
Buy the dip
Still, Spanish equity markets have strongly underperformed other stock markets in Europe this year, on the back of the recent political uncertainty (see graph). Therefore, Spanish investors are starting to see opportunities again after a few turbulent weeks for local assets, especially equities.
“With the announcement of new elections [on 21 December], the uncertainty is going to be relatively short and polls are yielding good results for the unionist side now. We will see how things evolve over the next days, but we are more positive at this stage even though you will not always be able to have everything under control.”
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