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Investing in ESP35: What to consider
The IBEX 35, also known as the ESP35, is Spain’s benchmark stock market index. The index contains the 35 companies with the highest trading volumes on the Bolsa de Madrid - Spain’s main stock market. Being the fourth-largest economy in the European Union, the Spanish market carries great significance and the ESP35 index could be used as one of the means to assess Europe’s overall economic health. Each stock within the index is allocated weight, based on its market cap. Since it is an index and not a tradable financial instrument, it is not possible to invest in the IBEX 35 directly. However, there are several derivative products which enable investment in the ESP35, such as ETFs and CFDs.
Who should include ESP35 in their portfolios?
- Thematic investors in the Spanish market: Being home to some well-known European brands, and having one of the largest economies in the EU, the Spanish market is attractive for many investors. Those who wish to invest in it as a whole, could consider investing in the ESP35.
- Global index investors: Investors who believe the global economy will continue to grow, could base their investment portfolios on derivatives of leading indices from around the world. Since Spain has one of the largest economies in Europe, an ETF or CFD tracking the country’s leading index could add to such a portfolio.
- Day traders: The ESP35 can sometimes show significant price swings over the course of a single day. Day traders often try to capitalize on such swings by opening and closing a position on the same day, with the hope of generating short-term profits.
- Long-term investors: Like in all developed countries, the Spanish economy is geared towards long-term growth. Investors who believe the Spanish economy is stable enough to continue to grow over time should consider investing in the ESP35.
What drives the ESP35’s price?
The different nations of the European Union have a codependent, often symbiotic relationship. This is one of the reasons the Union was formed to begin with - to enable easier trading and migration of citizens between these countries. However, Spain is a country divided, with several forces driving internal conflict, which adds to the factors that could shape its economy, and subsequently the ESP35. Here are some of these factors:
- The ECB: The European Central Bank has control over many aspects of the European Union’s economy. Decisions such as interest rates and monetary strategies influence the various countries within the Union, including Spain, meaning the IBEX 30 could also be affected.
- Internal politics: For many years, Spain has been suffering from internal struggles, such as the repeated Catalonian campaigns for independence. Whenever such a struggle results in a meaningful event, it could also impact the Spanish economy.
- Global factors: The American market often serves as the driving force in the global economy. A good closing on Wall Street could often lead to a good trading session in Europe the following day.
- Individual stocks: Since there are only 35 stocks within the index’s composition, a single stock, especially one with significant weight, could move the entire index if it shows great gains or losses.
ESP35: Driven by internal and external factors
The Spanish economy has known ups and downs over the years and has been impacted by factors both from within and from outside the country. From the outside, Spain’s relationship with the European Union was at times mutually beneficial and at other times quite complicated, including debt and intercontinental disputes. Needless to say, the ESP35 index often had a positive response to the former and a negative one to the latter. However, it is the internal struggles in Spain that could prove to be the most influential. The Catalan drive for independence, which peaked in the second half of 2017, has many economists worried. Catalonia is responsible for nearly a fifth of Spain’s GDP, and a breakaway to independence could severely weaken the Spanish economy. The Catalan people also have a lot t to lose, as much of Catalonia’s exports are to Spain. Moreover, Catalonia will not automatically become a member of the EU, which could add difficulties to its international economic relationship, not to mention the added costs of establishing its own governmental facilities.
History of ESP35
The IBEX 35 index was created in 1992, containing the 35 companies with the highest trading volumes traded on the Madrid stock exchange. Although launched in 1992, its base value of 3,000 points was calculated based on market conditions in 1989. The index is rebalanced twice a year by a committee containing representatives of the stock market, financial experts and academics. Unlike many other global indices, the ESP35 peaked well after the dot com bubble of the early 2000s, registering its highest value to date in 2007. During that time, the index outperformed many of its international peers, boosted by a momentous rise in real estate development in the country. While the stocks in its composition are traded in Spain, nearly half of the companies within the IBEX 35 have non-Spanish ownership.
Conclusion: ESP35 is
The Spanish economy’s future could develop in many ways. On the one hand, immediate threats to its stability, such as the Catalan drive to independence, could definitely have a negative impact on Europe’s fourth-largest economy. On the other hand, the ESP35 index has shown in the past that it can be bullish when other global markets are bearish, which could be indicative of its stability. Moreover, Spain is a well-established member of the European Union, meaning it does have immediate support from its European peers. Therefore, those who take interest in the ESP35 should follow events closely and remember to examine factors both from inside and outside Spain.