The Spanish stock market is experiencing its best start to the year since 1998: what can we expect now?

The Spanish stock market has started the second half of the year on an optimistic note despite the uncertainty surrounding the current environment. After its best start to the year since 1998, with a 30% increase in value in the first half of the year, the Ibex 35 continues its strong performance, now reaching twice the return of the European stock market.

What are the reasons behind this trend? In his latest monthly letter , José Ramón Iturriaga , Spanish equity manager at Abante, highlights four: the strength of the economy , driven by the recovery of the real estate sector, the boom in tourism, and a competitive foreign sector; corporate earnings , which have performed well in profits, exceeding expectations; attractive valuations , as Spanish companies' profits have grown more than share prices; and the greater weight of sectors linked to the real economy, such as banking .

Thus, although 2024 closed with high expectations for the US stock market, driven by so-called "American exceptionalism" and the belief that Donald Trump's victory would give a new boost to the US markets, reality has ended up surprising many investors.

"Europe is starting to be a focus of international attention, and Spain is particularly shining."

“We all thought that the pragmatism of Trump's first term would continue into his second, but that hasn't been the case, and many investors started the year on the wrong foot,” says Iturriaga. Against this backdrop, “ Europe is starting to be a focus of international investors, and Spain is particularly shining. It was time for the Spanish economy to grow after several years of crises, years in which the excesses have been cleaned up.”

Now, "Spain stands out from the rest of the countries; growth will continue at a good pace, and in a scenario where Spanish investors have been hindered by political noise , they could start to join this trend, attracting more capital," he asserts.

However, in the face of a second half of the year that will continue to be marked by political uncertainty, trade tensions, and interest rate expectations, Abante's managers emphasize the importance of " not losing sight of our medium- and long-term objectives , because Trump's messages will likely continue to provoke doubts and volatility in the markets."

Rotation towards Europe

According to Reuters , global investors have reduced their holdings of US equities by a record amount in the first few months of 2025, "a trend that is likely to continue as a record number of managers say they plan to further reduce their exposure ," according to BofA Global Research. Against this backdrop, a rotation of flows from the United States to Europe has been observed since January 2025, driven precisely by the uncertainty generated by Trump's policies.

This is shown by Bank of America's monthly survey of fund managers (known as the Bank of America Fund Manager Survey), which highlights a historic rotation of capital towards European assets: 39% of the managers surveyed are overweight in European equities, marking the largest overweight position since mid-2021. In contrast, 23% are underweight in US equities, the highest figure since mid-2023. This rotation is the most pronounced since 1999, according to FundsPeople.

However, Josep Prats , European equity manager at Abante, clarifies that "the difference in valuation between the European and US stock markets is due to the sectoral composition, but if we compare sector by sector, the valuations are similar , although Europe is somewhat cheaper."

In particular, the European financial sector stands out because " European banks are more efficient than US banks after years of adjustments. Now, with normalized rates, lending pays off, and well-managed banks have great potential." As Iturriaga adds, this rate normalization has returned banks to profitability "well above their cost of capital," something the market has not yet fully reflected.

Regarding the real estate sector, SOCIMIs (listed real estate investment trusts) are trading at significant discounts, according to Iturriaga, but with interest rates falling, "valuations will soon be revised upward." The Abante Real Estate Sector fund maintains a contrarian stance, betting on this "forgotten" sector with great potential, as Iturriaga concludes in his monthly newsletter.