This achievement stands as the most outstanding annual performance since 2009 when global markets rebounded collectively after the financial crisis.

More notably, the IBEX 35 has effectively reclaimed levels at which it traded before the onset of the pandemic in March 2020.

Factors behind the Spanish stock market rally In 2023

Several key factors prompted the resurgence of Spanish stocks. Foremost among them is the robust recovery of the Spanish economy from the devastating impact of the COVID-19 pandemic. Spain, heavily reliant on the tourism industry, saw a remarkable resurgence as travel restrictions eased and tourists returned. This resurgence not only invigorated the domestic economy but also revitalised the labour market.

The Instituto Nacional de Estadistica (INE) reported a record-high employment rate in Spain in September 2023, with 21.2 million people employed. Concurrently, the unemployment rate dropped from a concerning 16.3% in the second quarter of 2020 to a more manageable 11.8% in 2023.

Spanish households demonstrated increased consumer confidence, leading to consistent growth in retail sales, which expanded by over 5% annually throughout 2023. Furthermore, the private services sector displayed a continuous expansion, with the Purchasing Managers’ Index (PMI) consistently remaining above the pivotal 50-point threshold.

IBEX 35’s top 5 gainers this year

Spain’s economic revival is vividly reflected in the performance of some of its largest corporations.

Notable among them is the Spanish multinational clothing company, Industria de Diseño Textil, S.A., known as Inditex. The company, led by Amancio Ortega and featuring popular brands like Zara, Pull&Bear, Bershka, Massimo Dutti, Stradivarius, and Oysho, achieved an astonishing 57% year-to-date increase, marking its second-strongest annual growth ever. Inditex reported revenues of €35 billion in the last twelve months and is now trading at record-high levels.

Real Madrid President Florentino Perez’s ACS S.A. emerged as the second-best performer on the IBEX 35, achieving a remarkable 48% year-to-date return, a feat not seen since 2006, before the global housing market crisis. Banco Bilbao Vizcaya Argentaria S.A. clinched the third position with a solid 45% return for the year, marking its best year since 2009.

The airport operator company Aena S.M.E., S.A. secured the fourth spot among the top performers on the IBEX 35, posting a remarkable 39% gain, which stands as a testament to Spain’s tourism recovery. Banco Santander S.A. follows closely as the fifth top gainer, with a 35% year-to-date increase.

What lies ahead in 2024?

Investors and market observers will be watching closely to see if the Spanish equity market can sustain its remarkable momentum and continue to surprise in the year ahead.

Despite the strong rally witnessed this year, Spanish equities continue to trade at reasonable valuations. The forward price-to-earnings ratio remains at approximately 10x, which stands about 30% lower than historical averages.

Following a strong real gross domestic product (GDP) growth of 2.4% in 2023, the Spanish economy is expected to experience a slight slowdown in 2024, with growth projected at 1.7%, according to the latest European Commission’s Autumn Economic Forecast. This deceleration is part of a broader economic landscape, but it is anticipated that the Spanish economy will regain momentum, reaching 2.0% growth in 2025.

The recently approved amendment to the Spain’s National Recovery and Resilience is expected to contribute to this acceleration, further stimulating growth-enhancing spending. The plan’s worth has been upped to €163 billion, equivalent to 13.1% of the Spain’s GDP in 2019.

Encouragingly, the unemployment rate is predicted to continue its decline, reaching 11.1% in the coming year.

While the macroeconomic outlook paints a favourable picture for Spanish companies operating in a supportive domestic environment, it is important to remember the significant influence of the global economic context on Spain’s economic fate.

The performance of Spanish equities in 2024 will be closely tied to the broader momentum in global financial markets.