By Elisabeth O’Leary and Jesus Aguado
MADRID, March 7 (Reuters) – A clear win for either of the main parties in Spain’s election on Sunday would be a quick shot in the arm for its flagging economy and stock market, but a hung result would be another drag, analysts said on Friday.
The ruling Socialists are ahead in polls by a few points, but many Spaniards do not rule out a late fightback by the conservative Popular Party (PP). Neither is expected to win an absolute majority.
“The markets have tended to punish the Spanish stock market following elections with no strong mandate,” Goldman Sachs analysts said in a recent research note.
“There are few differences in terms of their economic programmes, with both (main) parties planning to tap the fiscal surplus with a stimulus package aimed at offsetting a slowdown in growth, particularly in construction,” said an analyst at a Spanish financial institution who requested anonymity.
“I think on Monday the market will outperform (Europe) in the case that either wins clearly,” he added.
Spain’s main Ibex index is down about 15 percent this year, in line with the wider DJ Stoxx 600, while economic growth is this year expected to slow to almost half last year’s 3.8 percent.
The main bugbear has been slowing construction and property companies and, while the sharpest effects have not been fully felt on the street, both main parties are proposing public works projects to sidestep the hangover after a decade-long real estate fiesta.
The risk of a close finish is that whoever comes first has to seek support to form a government, consuming valuable time before a tonic for the economy can be applied.
“A very narrow win would be the worst scenario possible. That would punish the market and make the formation of a government difficult, generating uncertainty,” said Victor Peiro, director of research at Caja Madrid Bolsa.
One trader said if the PP was to pull off a surprise win, the market would likely rally short term, because it is traditionally considered more pro-business.
But, primarily, getting the election out of the way would pave the way for quickfire merger news, which has been held back by political uncertainty, particularly in the energy sector.
Some say that would likely affect Iberdrola and Union Fenosa, and possibly Repsol.
A change of government would not necessarily change the outcome of bids for Spanish companies, with political leaders trying to have their say in who gets what, despite disapproval from the European Union.
“The PP are just as protectionist (towards Spanish companies) as the Socialists. In the end, we all like looking after our herd, having spent years fattening it up,” an analyst at a foreign bank said.
A Socialist win might provide a boost for regulated sectors such as energy, said Alberto Zumarraga, managing director of brokerage Mercagentes.
“If the Socialists win, we shouldn’t see too many changes and perhaps we’ll see a rally, perhaps more pronounced in the renewable energy and electricity sector, which will benefit from a stable regulatory framework and speculation of corporate movement which, if not encouraged by the Socialists, at least is not hindered by them.”
Zumarraga also pointed out the markets tend to punish a change of government, whatever the direction of the change.
