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 stabilise its troubled property sector.
‘Improvements in the Spanish banking sector are particularly encouraging. At a macroeconomic level, the quantitative easing programme 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%.’
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.‘
Speaking shortly ahead of an impending general election, Brain said the feeling on the ground was there would be no major upheaval, despite much-publicised 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.