The IBEX 35 at a glance
The Iberian Index 35 (IBEX) was established on January 14, 1992 by the Madrid Stock Exchange. The index base is retroactively calculated to December 31, 1989. A starting value of 3,000 points was defined for this day. The index is managed and calculated by Sociedad de Bolsas, a subsidiary of "Bolsas y Mercados Españoles".
This company operates the largest Spanish stock exchange in Madrid. In contrast to the DAX, the IBEX 35 is a price index. This means that, for example, dividend payments of the companies in the IBEX do not affect the value of the index.
Weighting of the IBEX 35
The companies in the index vary in size and therefore have a different significance for the Spanish economy. For this reason, the companies are weighted based on their market capitalization. This means that larger companies have more influence on the index than smaller ones. This system is applied to all modern indices.
The finance and utilities sectors dominate the IBEX 35. Additionally, the telecommunications and consumer goods industries (cyclical consumption) are also heavily weighted.
The largest company in the index is Iberdrola SA. This energy provider has a market capitalization of 66 billion dollars in January 2022. At the other end of this list is the pharmaceutical company Pharma Mar SA, which is only worth a little over a billion on the stock market.
The difference between the largest and the smallest companies in the index is exceptionally large. For example, the top 5 companies account for more than 50% of the index movement.
The most well-known companies from the IBEX 35
Most companies from the IBEX 35 are unknown to German investors, however, there are some companies that almost everyone has heard of. For example, the banks Santander and BBVA are globally recognized. Santander became the largest bank in Spain after several mergers and acquisitions.
The Financial Stability Board has also classified them as "systemically important financial institution". BBVA is the second largest bank in Spain. This financial institution has many customers and a high level of recognition, especially in Latin America.
The textile company Inditex owns many well-known fashion brands. These include Zara, Pull & Bear, Massimo Dutti, and Bershka. The telecommunications company Telefónica operates in Europe and Latin America and is one of the market leaders there. Telefónica owns brands such as O2, Movistar, and Vivo.
The best and worst days of the IBEX 35
Like any index, the IBEX 35 has also experienced highs and lows. The milestones of 5,000 and 10,000 points were reached on December 26, 1996, and March 24, 1998, respectively. The all-time high of almost 16,000 points was reached on November 8, 2007. This was shortly before the global financial crisis, which caused the index to fall below the 10,000 point mark.
The Euro crisis from 2010 led to another drop in stock prices. Since this significant decline, the IBEX has been moving sideways between 7,000 and 12,000 points. In January 2022, the index stands at a value of 8,800 points. This is nearly 50% below the all-time high before the financial crisis. The reason for this is Spain's high debt and the resulting weak economic growth.
Performance compared to other indices
The development described above alone does not provide much meaningful information. To better interpret the data, the IBEX must be compared to other indices. Prior to the global financial crisis in 2007/08, the Spanish index followed a similar trajectory to the German DAX and the American S&P500. However, the Spanish index exhibited greater volatility.
After the financial crisis, a strong economic growth began in America and large parts of the world. This was the reason for continuously rising stock prices. For example, before the big crash in 2007, the S&P500 had a value of approximately 1,500 points. Due to the strong recovery afterwards, the index is now at 4,700 points.
Such growth has not been seen in Spain. In the past five years, the IBEX has had a total return of -7%. The global MSCI World achieved over 80% profit in the same period.
What is important for retail investors?
There are many fascinating companies in Spain. An investment in these has historically yielded very good returns and is likely to do so in the future.
An investment with an ETF in the entire index should be carefully considered. The historical return is very poor, and there are no signs of improvement in the short to medium term. With a global MSCI World or the Europe-wide Eurostoxx 50, a significantly higher profit can be achieved with lower risk.
