Madrid market volatility due to elections, analysts say
Uncertainty of outcome weighing on investors' minds7 February 2008
MADRID - Spain's Ibex 35 index led a partial recovery of European stock markets on Wednesday, a day after suffering its second-biggest one-day loss this year, maintaining the highly volatile trend that analysts say will continue at least until the general election on 9 March.
While markets around the globe have suffered from sharp ups and even steeper downs in recent weeks amid fears of a US recession that could drag the rest of the world with it, the Madrid market has proven to be especially volatile. From an economic perspective, one reason for the whiplashing of Spanish stocks is that the Spanish economy, after years of robust growth and in the wake of a decade-long real estate boom, has farther to fall in a global slowdown. However, many analysts also note that the forthcoming elections are an important factor weighing on investors' minds that may go someway to explaining the higher volatility of Madrid, relative to London, Paris and Frankfurt.
"In a market as regulated as Spain, it matters who's in charge," notes David Navarro, an analyst at Inversis Banco.
The problem is not so much the timing of the elections in the context of a slowing economy, but the fact that with little more than a month to go neither the incumbent Socialist Party nor the main opposition Popular Party look like clear winners.
"It generates uncertainty..., reduces visibility and increases the premium of risk," argues Javier Barro, an analyst at BPI.
Many market watchers suspect that a large number of investors, particularly big institutional buyers, are staying out of the market until it becomes clear which party has won on 9 March. However, the elections are only one of many factors, both domestic and international, that are contributing to the volatility, leading many analysts to recommend that small investors hold back until things settle down.
"We can't trust these movements. You can't buy and sell based on them," says Jordi Padilla, the head of analysis at Atlas Capital.
[Copyright EL PAÍS / A. EATWELL 2008]
Subject: Spanish news