04 Juni 2018, 15:28 GMT
The latest turn of events has seen Spain’s Prime Minister Mariano Rajoy being ousted by Parliament in a no-confidence motion on Friday.
The opposition leader, the socialist Pedro Sanchez, has replaced him and is now the new Prime Minister.
Looking ahead, despite the changes at the helm, there is very little that the new Spanish government can actually do. The government that Mr. Sanchez now leads has a very slim majority in Parliament, and relies on the support from parties with very, very different political agendas. The room for manoeuvre on the fiscal side is also limited, with the 2018 budget already ratified by Rajoy before his departure. As it stands, in the short term it is difficult to see how long the new government will hold, and new elections appear likely in the months ahead.
Italy’s troubles throughout May triggered a spike in government bond yields. But despite political uncertainty in Spain, investors are likely to approach it differently from Italy alternatives for two reasons.
Firstly, in Spain there is much more support for Europe across the political spectrum and among the population, which should prevent a replay of the sparring and anti-Euro headlines that weighed on Italian assets in May. Secondly, Spain is in a stronger position, both on the economic and fiscal front. The country has implemented structural reforms, benefits from a structurally higher level of growth, and has a lower debt to GDP ratio than Italy.
These factors should lead Spanish Bonos to remain well supported and outperform BTPs in the near term.
However, investors should not consider Spain completely immune to volatility or external factors and must tread carefully when allocating capital. As we saw in the last week of May, Spanish assets can be heavily driven by the broader risk sentiment around peripheral debt. Should the Italian situation escalate again, and BTP yields rise, Spanish Bonos are likely to follow suit, with correlations between the two markets likely to remain elevated in the months ahead.
Lesen Sie mehr
This material was created by Fidelity International. It must not be reproduced or circulated to any other party without prior permission of Fidelity.
This communication is not directed at, and must not be acted on by persons inside the United States and is otherwise only directed at persons residing in jurisdictions where the relevant funds are authorised for distribution or where no such authorisation is required. Fidelity is not authorised to manage or distribute investment funds or products in, or to provide investment management or advisory services to persons resident in, mainland China. All persons and entities accessing the information do so on their own initiative and are responsible for compliance with applicable local laws and regulations and should consult their professional advisers.
This content may contain materials from third-parties which are supplied by companies that are not affiliated with any Fidelity entity (Third-Party Content). Fidelity has not been involved in the preparation, adoption or editing of such third-party materials and does not explicitly or implicitly endorse or approve such content.
Fidelity International refers to the group of companies which form the global investment management organisation that provides products and services in designated jurisdictions outside of North America Fidelity, Fidelity International, the Fidelity International logo and F symbol are trademarks of FIL Limited. Fidelity only offers information on products and services and does not provide investment advice personal recommendations based on individual circumstances.
Issued in Europe: Issued by FIL Investments International (FCA registered number 122170) a firm authorised and regulated by the Financial Conduct Authority, FIL (Luxembourg) S.A., authorised and supervised by the CSSF (Commission de Surveillance du Secteur Financier) and FIL Investment Switzerland AG, authorised and supervised by the Swiss Financial Market Supervisory Authority FINMA. For German wholesale clients issued by FIL Investment Services GmbH, Kastanienhöhe 1, 61476 Kronberg im Taunus. For German institutional clients issued by FIL Investments International – Niederlassung Frankfurt.
In Hong Kong, this content is issued by FIL Investment Management (Hong Kong) Limited and it has not been reviewed by the Securities and Future Commission. FIL Investment Management (Singapore) Limited (Co. Reg. No: 199006300E) is the legal representative of Fidelity International in Singapore. FIL Asset Management (Korea) Limited is the legal representative of Fidelity International in Korea. In Taiwan, independently operated by FIL Securities (Taiwan ) Limited, 11F, 68 Zhongxiao East Road, Section 5, Xinyi Dist., Taipei City, Taiwan 11065, R.O.C. Customer Service Number: 0800-00-9911#2.