Equities: Bullish Small Caps
On September 13 we placed a bullish Spanish IBEX small cap equity view in our asset class strategy, upon the break of resistance at 4,000, and the index has already rallied 2.7% since then . We have long highlighted Spanish small caps as one of our preferred ways of playing the improving eurozone growth (particularly German demand) story ( see 'The Case For Periphery Over Emerging EU Stocks', June 20, and 'Regional Equity Strategy September 3), and the break through 4,000 is the technical signal that we were waiting for.
The next major technical resistance on the weekly chart comes in around 5,000, 30% up from current levels. Given relatively depressed valuations (the index is currently trading at a price-to-book ratio of 0.7), an improving export story and early signs that the region's banking sector may be past the worst, we see potential for a move back to this level over the next few months. A move back below 4,000, however, could prompt us to reassess our bullish view.
|Long Way To Go|
|Spain - IBEX Small Caps Index|