Spain remains Europe’s most compelling equity story despite recent rally: Barclays

Investing.com -- Spanish equities have been one of the standout performers in 2025, with the IBEX index up 30% year-to-date and ranking among the best-performing markets globally.

The rally has even outpaced the AI-heavy U.S. index, though the Spanish benchmark remains below its 2007 peak, while the broader STOXX Europe 600 sits well above pre-financial crisis levels.

Italy has also rallied strongly, putting Europe’s periphery ahead of core markets, where France has lagged and Germany has lost momentum amid concerns about stimulus execution.

Against this backdrop, Barclays strategists argue that the case for Spain continues to “stand out as the most compelling within the Europe periphery,” underpinned by stronger GDP growth, fiscal consolidation, earnings momentum, and undemanding valuations.

1) ’Above-average GDP growth looks set to continue:’ Barclays’ economists expect Spain to expand by 2.7% in 2025 compared with 1.3% for the euro area. Growth should slow in 2026, but Spain is still seen nearly doubling the bloc’s pace at 1.9% versus 1.0%.

Strategists led by Emmanuel Cau highlighted that “positive demographics, NGEU grants, strong tourism and cheap energy prices have contributed to boost Spain’s growth potential.”

Foreign direct investment and labor productivity are also advancing more quickly than in most euro-area peers.

2) ’Fiscal position is improving:’ Spain is the only major euro-area economy with debt-to-GDP on a clear downward path, with the deficit expected to fall below 3% by 2026. S&P recently raised the country’s credit rating to A+, citing external balance-sheet improvements and a decade of private deleveraging.

Barclays notes this has helped bring the Bono-Bund spread to its lowest since 2010, normalizing the equity risk premium.

3) ’Potential for upgrades to EPS estimates:’ Spain’s EPS growth has outpaced peers in 2025, and revisions have been consistently positive. Yet consensus still sees Spain delivering the weakest EPS growth among major EU markets in 2026, at 5% versus 12% for MSCI Europe.

Strategists counter that its top-down model, based on GDP and commodity prices, points to “high single-digit EPS growth” being achievable both this year and next.

"FX is also less of a swing factor than for other EA (euro area) countries," the team added. 

4) ’Valuations remain depressed, positioning is low:’ Despite the rally, valuations remain low, strategists said. Spanish equities trade at 12.1 times forward earnings, a 7% discount to historical relative averages, compared with 14.6 times for MSCI Europe.

Barclays also points out that “positioning on Spain is far from crowded as the bulk of the EU equity inflows have gone to Germany and Italy so far this year."

Banks have been the main driver, with Spanish lenders up about 70% this year, contributing two-thirds of IBEX gains. But Barclays highlights broader opportunities too, including Spain’s role as an emerging European data-center hub.

The bank’s most favored stocks include Repsol, BBVA, Fluidra, Grifols, Endesa, and Redeia.