Largest European Money Manager Likes Spain Debt on Fundamentals

(Bloomberg) -- Europe’s largest money manager has built an overweight position in Spanish bonds as the nation’s economy outperforms its euro-area peers and seems immune to separatism in the Catalonia region.

Amundi SA, with 1.4 trillion euros ($1.7 trillion), has a long position on Spanish and Italian sovereign bonds versus core European bonds such as Germany, the firm’s Chief Investment Officer for Spain Victor de la Morena said in an interview. The asset manager is betting on strong growth in Spain, fueled by private consumption, and sees inflation well below 2 percent.

International investors are looking beyond political turbulence after the Catalan independence push failed in October, as Spain extends its economic recovery into a fifth year. Its resilience to international pressures also has prompted all three major credit rating agencies to improve their view on the sovereign this year.

“When the crisis erupted, we neutralized our positive view on Spain on concerns that it would reflect on the broader economy, ” De la Morena said. “That has subsided and we’ve turned positive again.” Amundi sees Spain growing 2.6 percent this year and 2.5 percent in 2019.

Fitch Investor Services made the first move in January, upgrading the kingdom to A-, while rivals S&P Ratings and Moody’s both followed suit with one-notch hikes.

The country’s bonds have gained since the Oct. 1 illegal independence referendum for Catalonia failed, with the Bloomberg Barclays Spain Government index returning 3.7 percent.

For a look at whether Spain’s regional governments return to bond markets, click here.

“Spanish debt is one of our favorites among sovereign debt and one of the bets we currently favor in local portfolios,” De la Morena said. “The spread Spanish bonds have versus German is interesting and the strong economic tone that the country has will continue.”

Adding to the bullish tone, the Bank of Spain and the Spanish government both revised their growth forecast upward for this year, to at least 2.7 percent, after cutting their projections last year coinciding with Catalonia’s bid for independence. Fears over a nationwide slowdown have subsided with the economy forecast growing 0.7 percent in the first quarter.

©2018 Bloomberg L.P.

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