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null The Case for Spain I: It's the Fundamentals, Stupid!

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The Case for Spain I: It's the Fundamentals, Stupid!
14 Nov 2012
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Clock 90 mins.
CATEGORIES: AER Public Spain Macro Spain Banking Sector
ANALYSTS:
dot
Ignacio de la Torre
Spanish asset prices have been massacred in 2012, mainly as a consequence of poor investment decisions and policies from the past. Yet, some justifications behind these price movements are biased. We intend to demonstrate in this report why this is so, as we look in detail at some of the country’s key macroeconomic and microeconomic data and challenge some of the negative myths about the economy. We also intend to prove that most areas of the Spanish economy are solvent, as assets well exceed debts. Ultimately, Spain is solvent, but illiquid. Liquidity is and will be provided by the eurozone, and this will avoid illiquidity turning into insolvency. Spain is growing through external demand (exports and tourism), which reduced trade deficit from €160 bn. in 2007 to €40 bn. by 2012. This growth, in our opinion, is structural, not short term in nature. It should drive Spain to a current account surplus by 2013, and it should reduce the country’s international debtor position.
dot Is Spain a solvent country?
dot What is the outlook for the banking sector?
dot What are its main risks and macro Sharpe ratios?

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