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Investors Eye Fractious Spain for Bargains

With Catalonia’s independence declared, Spain stares down its worst constitutional crisis since becoming a democracy.

  • Joe McGrath

Asset managers believe Catalonia’s fight for independence could offer up buying opportunities for Spanish assets, despite the longer-term implications for Spanish interest rates.

Catalonia, a region in northeast Spain, declared independence from Spain Friday, following a disputed referendum earlier in the month. Spanish prime minister Mariano Rajoy responded forcefully. He took steps to strip the region’s autonomy and impose direct rule by the Spanish central government, following agreement from the Madrid senate.

Investors have so far remained cool to the schism, with Spain’s benchmark Ibex index swiftly recovering from a small dip upon Catalonia’s declaration Friday. Buying opportunities could be ahead, according to some.

“I don’t see any quick solution to this matter. I would say that, if the market was to go down dramatically, I would see it as a big opportunity,” Arne Rautenberg, a portfolio manager at Union Investment, told Institutional Investor. “Obviously, banks would be the most direct play, but real estate companies too. It is very unlikely they have any shot of independence actually happening, but I am not expecting this to end tomorrow either.”

In a written statement issued prior to Friday’s events, Nigel Green, CEO of investment consultancy deVere Group, said clients should remain cautious and cognizant of their exposure profiles. “They need to ensure that they are properly diversified in order to mitigate the risks of this and other geopolitical events and to take advantage of significant opportunities that they simultaneously present,” Green advised.

The region’s tumultuous political situation has long been observed by European investors. In 2014, II reported that investors were again weighing their risk allocations when the Catalans called for a referendum on independence.

[II Deep Dive: Catalonia Calls for Independence Referendum from Spain (2014 Ed.)]

Events in Catalonia could harm overall Spanish economic growth and lead to higher future interest rates, Rabobank senior economist Maartje Wijffelaars warned in a research note last week. Several companies in Spain’s blue-chip stock market index have already moved their headquarters out of the region, the Rabobank note pointed out.