What support does the Stock Market have to regain its balance?

The drop in the Ibex 35 caused by the coronavirus has meant that governments have begun to adopt a series of measures to try to get the Spanish stock market to rise again. These measures have arrived almost a month later, however, it is expected to recover what was lost in the las few weeks. In fact, after the announcement of these measures by the Prime Minister, Pedro Sanchez, the stock market has recovered, appearing in this the colour green again. 

Although, as you might expect, Spain has not been the only country to take action in response to this situation, other countries such as the United Kingdom, the United States and Germany have also taken action. 

Shielding of listed companies 

One of the measures taken has been the government’s shielding of listed companies, a measure gets going due to increased markets volatility and falls in share prices. In this way, companies with great power outside the European Union are prevented from taking control of them. They are protected, and the stock market crash is avoided. In addition, it ensures that they cannot remain in control of strategic sectors because of the large drop in shares caused by this situation. 

Mobilisation of 200 billion  

Another of the actions that the Government has set in motion has been an economic plan that will mobilize €200 billion, of which €117 billion will be public funds and the rest will correspond to the private sector. Therefore, both banks and investors are going to have to contribute as well. This should not be a problem, since, according to several banks, financial institutions have liquidity and are therefore prepared to grant bridge loans on very beneficial terms for companies. However, it should be noted that this is mainly aimed at large companies, which are favoured. By contrast, small and medium-sized enterprises, as well as companies with poorer credit ratings, may have more problems in meeting their financial obligations. 

Since our President announced this news, the index has stood at 6,498 points (almost 20% of GDP). According to Sánchez, this has been “the greatest mobilisation of economic resources in the Spanish’s recent history “. 

These measures have been adopted following the examples of countries such as France (which reported a plan for 300 billion) or Germany to prevent companies from encountering solvency problems. 

Short position veto 

Another action taken to protect companies in Spain has been taken by the National Securities Market Commission (CNMV), which has decided to deal with the effects caused by coronavirus. This is why it has announced containment measures to keep bearish investors away. These have been taken, among other reasons, because of the risk that in the following weeks there could be disorderly price movements. 

The action consists of the veto of short positions during one month, from March 17 to April 17. The date may be extended, but not for more than three months. Despite the fact that initially most of the Ibex’s stocks were under protection, the intention was to extend the initial 69 stocks, currently vetoing all short positions on all stocks on the Spanish stock market. This measure has been so successful, since it has allowed the recovery of losses, that both Italy and South Korea, among others, have wanted to imitate this decision taken in Spain. Although these countries only suspended short positions during one session, they do not rule out a more long-term measure such as that of our country. 

On the other hand, it should be noted that the CNMV plans do not include closing the market. 

European Central Bank 

In addition, as far as the European Central Bank is concerned, it has announced a series of plans to support public debt, which will help the Spanish bond. In fact, the head of the ECB indicated the urgency of putting in place “credit guarantees that limit the threat of a fall in income that could put the survival of companies that were in a good situation before this setback in check”. It has been noted that a large number of large companies have enough funds to face debts service for two or even more years. It should be noted that the IBEX company with the greatest liquidity is Telefónica with 22,839 million according to data from the close of 2019, with Iberdrola in second place. 

Other measures 

Also, a number of different measures have been announced. There are some aimed at families such as a moratorium on mortgage payments or the elimination of payment of fees for the freelance. Others, economic and labour, including the exemption from payment of contributions to companies that opt for temporary layoffs (ERTE) instead of firing their employees. 

Finally, the strong start on Wall Street, which has been boosted by White House aids, has been another event that has allowed the IBEX to soar. 

All these measures mentioned above have caused the green colour to appear in the main European stock markets. As a result, companies such as Mapfre and Telefónica rose by more than 15%, followed by MásMóvil (+14.41%) and Iberdrola (+12.12%). 

However, the government’s measures have also been reflected in the banks, mainly in Bankia, which has recovered the euro per share by almost 15%, followed by Banco Sabadell with 7.17% and BBVA with 6.92%. In addition, the president of Bankia commented that the entity is examining measures to help families, SMEs, the freelance and important companies in our country. These will be added to those of the government to cover the financial needs of its customers that have appeared with the arrival of the Covid-19. 

Source: Expansión

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