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Investors Return To Spain As Outlook Brightens

Last year, Spain's IBEX 35 Index wasn't doing so well. However, since the European Central Bank's (ECB) bond-buying plan was announced in September, investors have returned to the country. Subsequently, the index has climbed 14 percent.

On Thursday, the Spanish treasury completed another successful bond auction with the improved sentiment allowing it to reach around 9 percent of its longer term borrowing needs for the year. Yields on 10-year benchmark bonds even managed to creep below the 5 percent level last week for the first time since February 2012, well below the 7-plus percent seen in July.

In September, the European Central Bank's chief Mario Draghi announced the Outright Monetary Transactions (OMT) program to buy the sovereign bonds of stricken euro zone members if they applied for aid. It might be the cheapest program he's ever introduced, as investor sentiment has returned without the need to even pull the trigger.

"We no longer think that Spain will ask for a program. The threat of OMT activation may be just enough to deter investors from taking short Spain positions of the size that occurred in [the first half of 2102]," Barclays said in a research note on Friday.

News like this has prompted analysts to claim that "the worst may be over."

The equity research team at Exane BNP Paribas was equally optimistic despite potential risks. At an investor feedback day held by the firm, a survey of delegates present found that over 70 percent felt IBEX would rise by at least 10 percent this year, in line with Exane BNP's estimates.

"Our own top picks in Spain include strong international franchises such as Inditex (Mercado Continuo: ITX-ES) and Amadeus, as well as companies that are positioned to take market share in a very tough consumer environment such as [supermarket chain] Dia," the bank said.

However, there is one thing that is holding investors back from being fully confident. Traders may be wary of a potential sudden spike in treasury yields. Ishaq Siddiqi, market strategist at ETX Capital says his team is treading carefully.

He remarked, "We would caution turning bullish on Spanish stocks during the first half of this year given there are still plenty of hurdles and unknowns in the way before investors should switch the bullish signals on."

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