Spain's Equity Market: A Golden Opportunity in Europe's Undervalued Heart

The Spanish equity market is quietly emerging as a standout opportunity in 2025, offering a rare blend of undervaluation, resilient growth, and technical bullishness. With its price-to-earnings (P/E) ratio at a historically reasonable 12.22 and GDP growth maintaining a steady 2.8% year-on-year, Spain's stock market—tracked by the iShares MSCI Spain ETF (EWP)—is primed for a comeback. This article dissects why now is the time to position in Spanish equities.

Valuation: A Bargain in a World of Overpriced Markets

Spain's equity market trades at a 12.22 P/E ratio, far below global peers like the U.S. (26.51 P/E) and France (17.59 P/E). Over the past five years, Spain's P/E has remained within one standard deviation of its historical average, signaling a “Fair” valuation. Meanwhile, the MSCI Europe Index trades at a two-standard deviation discount to the S&P 500, a multi-decade low (see Figure 5 in the research). This undervaluation creates a compelling risk-reward proposition.

GDP Growth: Resilience Amid Moderation

While Spain's quarterly GDP growth slowed to 0.6% in Q1 2025 from 0.7% in Q4 2024, the annual growth rate remains robust at 2.8%. Domestic demand—driven by household consumption (+0.4% QoQ) and public spending (+0.2% QoQ)—remains the engine. Even construction, though moderating, still grew by 0.4% QoQ. Services and manufacturing also held steady, while the primary sector surged 7.1% QoQ, bouncing back from prior weakness.

Spain's economy is also benefiting from fiscal stimulus, including infrastructure spending and labor reforms. With unemployment at a decade-low 12.3%, consumer confidence is buoyant. While growth has cooled from its 2024 peak, it's far from a slowdown—it's a sustainable, inflation-moderated expansion.

Technical Momentum: EWP's Bullish Signals

The EWP ETF is trading 6.66% above its 50-day moving average and 16.06% above its 200-day moving average, signaling strong short- and long-term momentum. This bullish divergence from overvalued U.S. tech-heavy indices (e.g., the NASDAQ's P/E of 35x) suggests Spain's equities are attracting capital fleeing frothy markets.

Why Invest Now?

1. Undervaluation Relative to Peers: Spain's market is cheap compared to the U.S. and European indices.
2. Technical Buy Signals: EWP's price action confirms upward momentum.
3. Earnings Growth: Spanish companies have delivered 14% annual earnings growth over three years, underpinning the P/E ratio's stability.
4. Euro Weakness: A weaker euro boosts Spanish exports, which grew 1.0% QoQ in Q1.

Risks to Consider

• Geopolitical Tensions: The Russia-Ukraine war and energy prices remain risks.
• ECB Policy: Potential rate hikes could temper growth, though the ECB has signaled patience.
• Sector Dependence: Spain's economy is reliant on tourism and construction, which are vulnerable to external shocks.

Investment Recommendation

The confluence of fair valuation, sustainable GDP growth, and technical strength makes EWP a compelling buy. Investors should consider:
- Allocate 5-10% of a global equity portfolio to EWP for diversification.
- Dollar-cost averaging into the ETF over the next three months to mitigate volatility.
- Monitor the euro's movements: A weaker euro could amplify Spanish equities' appeal.

Spain's equity market is no longer an afterthought. With its P/E ratio at a sweet spot, GDP growth holding firm, and EWP's technicals screaming buy, this is a rare chance to capture value in a market ripe for a revaluation. Act now—before the crowd catches on.

Data as of July 2025. Past performance does not guarantee future results.