Spain voted on June 26 with polls suggesting that the populist progressive Podemos party would overtake the traditional Socialist Party, PSOE, as the main left-wing opposition to the center-right Popular Party, or PP. Some thought the electoral math might even favor a progressive government headed by Podemos leader Pablo Iglesias. That didn’t happen. Brexit may have had an impact. Opinion polls seem so routinely wrong in Europe these days that their predictive failures merit little explanation. Perhaps we should just get over these glorified horoscopes. Yet it may be the case that the polls reflected a mood that changed at the last moment. The Brexit referendum was viewed as a disaster in Spain. One of the few things that unites all four major parties (and almost all of the nationalist parties, too) is that staying in the EU, however flawed, is better than leaving.
Emilio Sáenz-Francés, professor of history and international relations at Madrid’s Comillas Pontifical University, believes that while many factors were in play, Brexit may have acted as a cautionary tale for some voters. “It may have had an effect when it came to persuading a certain proportion of voters to return to traditional Spanish voting values and to the more conventional and traditional parties like the PP and the PSOE,” he said. “I think that Brexit has had an awareness-raising effect on Spanish voters and has highlighted the danger of voting purely on the basis of protest.”Oh, and, in case you’re wondering, I have literally zero affinity for either candidate in the U.S. race! Moving on: You clients out there know that I believe lands outside our borders --- where 96% of the world’s population (and over 50% of its stock market capitalization) lives --- offer up opportunities that a balanced diversified investor should never overlook. I recently overheard a colleague suggest that foreign stocks in general presently offer more attractive valuations than do the U.S.’s, but that they have more problems to deal with. And of course he’s right. And of course he had just explained why foreign stocks presently offer more attractive valuations. Valuations are generally measured by things like price-to-earnings and price-to-book-value ratios. When the price of a company’s stock is historically low relative to what the company is actually earning, or relative to what the company would be worth if it sold all of its parts, it is said to be attractively valued. And, of course, if a company’s stock price is not reflecting what its earnings, or its assets, would normally call for, then something is perceived by the market to be amiss. In other words, if foreign companies, or the economies of their respective domiciles, didn’t have visible challenges to deal with, well, then their stocks would be trading right up there --- valuation wise --- where they typically do. So then, problems equal opportunity! Right? Just ask Warren Buffet… Bottom line, as of the moment, Brexit hasn’t dented my long-term optimism over the non-U.S. portion of our clients’ portfolios. In fact, quite the opposite! Happy Independence Day! Marty P.s. In case you missed it, here’s me getting underneath the headlines to explain why the big post-Brexit rally: