Spain is on course to become the largest economy in the eurozone with the banking sector proving a particular bright spot, Newton’s head of fixed income has said.
In an investment update, Citywire + rated manager Paul Brain said, while unemployment remains high, this figure has started to noticeably fall.
Brain, who runs four funds on behalf of the asset manager, said the country is primed to be a key beneficiary of ECB stimulus action, which will also help stabilize its troubled property sector, Citywire reported.
“Improvements in the Spanish banking sector are particularly encouraging. At a macroeconomic level, the quantitative easing program of the European Central Bank is dependent on a fully functioning European banking system.”
“Now, after a difficult period, Spain is playing its part in helping to achieve this,” he said. “The Spanish economy is gradually finding its feet again.”
“According to some economic analysts, Spain is this year even predicted to become the largest economy in the eurozone to achieve annual growth of around 30%.”
His comments echo those of Niall Gallagher at GAM, who previously said he expected Spanish growth to outstrip the United States over the next three years.
ECB Action
Brain said the move towards very low or negative interest rates by the ECB is finally affecting the Spanish market. The interest rates on offer from banks to Spanish cash investors have subsequently dropped significantly.
“Just a couple of years ago when we visited Spain we found we were competing against local deposit rates of 3-4% and a bond market that had a government 10 year yield of 4-5%. In that environment it was very difficult to sell global fixed income products,” he said.
Brain travelled between cities in Spain on the advanced high speed network and was struck by the economic progress that the country has made. He hoped that the country could leave the recession behind and now concentrate on building future prosperity.
“Now that cash rates have come down to nearer 1% and 10-year yields stand at just over 1% the fixed-income market offers a more competitive playing field.”
“At a domestic level, Spanish investors are increasingly taking money out of their banks to put into mutual funds and this could eventually help to rebalance the economy,” Brain said.
Speaking shortly ahead of an impending general election, Brain said the feeling on the ground was there would be no major upheaval, despite much-publicized separatist movements.
Brain’s best-performing fund at present is the $284 million BNY Mellon Global Dynamic Bond fund. It has returned 12.7% in US dollar terms over the three years to the end of April 2015. This is while the average manager in the Bond – Absolute Return sector returned 6.7% over the same period.
Eurozone Slowdown Offset
Economic growth in the eurozone eased less sharply than first estimated in April, as pickups in Spain and Italy partly offset slowdowns in Germany and France, according to surveys of purchasing managers, MarketWatch reported last week.
The surveys continue to indicate that the eurozone economy has emerged from a long period of near stagnation, aided by lower oil prices, a weakening euro and strengthened confidence following the European Central Bank’s launch of a new stimulus program.
The slowdown may also reflect growing concerns about the Greek government’s ability to repay its debts and remain a part of the currency area. More than three months after winning elections, Greece’s new government remains at loggerheads with its European creditors – led by Germany –over its Euro 240 billion ($268b) bailout program.
