How investors could benefit from Spain’s Catalan crisis
The concern seen in financial markets is justified — but the crisis may also be overblown and could offer investment opportunities, writes Komal Sri-Kumar
When financial markets opened on October 2, Spanish equities fell, sovereign yields rose and the euro weakened significantly against the dollar, as investors worried that the push for secession in Catalonia could lead to a breakup of Spain. The concern is justified, but the crisis may also be overblown and could offer investment opportunities. Catalonia accounts for about 16% of the country’s population, and more than 20% of gross domestic product (GDP). About a quarter of Spanish exports are Catalan products, and about the same proportion of inward foreign investments to Spain is destined to the region. Barcelona, the regional capital, is a major European city and remains an important tourist draw. A truncated Spain could lower the country’s debt service capacity, causing rating firms to downgrade the obligations. Investors, in turn, would have to re-evaluate risk-adjusted returns in holding sovereign paper, and reassess the earnings potential of Spanish companies that would have t...
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