Why do I believe Portugal is an interesting investment opportunity?

Why I believe Portugal looks like a good investment?

There are many different ways to approach investment and many investors tend to fiercely defend their style. We have value investors looking for assets that are cheap and great. Momentum managers tend to like companies that aren’t as cheap anymore but have already started trending. Then you have macro investors and technical traders. Most gurus will argue why they do what they do and why they believe the others are wrong and they are right.

However, they might all be complementary ways of getting information and in some occasions, we might find some very interesting opportunities that look good from many perspectives. I believe this is what is now happening in Portugal and therefore I’m personally buying some exposure to the Portuguese stock market. Let me explain why.

Macro:

From a macro perspective, both Europe and the USA look quite good, at least for the following months. For more info on this, you can read this posts: USA & Europe. So in my opinion, the general atmosphere is going to be quite positive for developed equities markets. So what about Portugal?

Portugal Summary October 2017.PNG

This is a summary of the main Portuguese macro indicators. The ESI as you know it’s a good way to aggregate all the info but then it’s also interesting to understand whats going on with its main components. As you can see they all look very good, consumer confidence at record highs, industrials, and services also showing very high readings. The only one that doesn’t look as good is the retail industry, that had already recuperated some years ago and now it’s not increasing as the other indicators, I believe this might be related to the “Amazon effect”.  If we add to this the fact that the political tensión has gone down a lot with the new government and its measures, it’s easy to imagine that Portugal looks quite strong, definitely stronger than other Mediterranean countries.

Technical analysis:

Let’s discuss the graph below, a weekly graph showing what has happened with the Portuguese market since 2008. As you can see the market has been bearish all this time, even after 2012 lows it didn’t manage to recuperate as Portugal went through a lot of trouble during 2015 and 2016. It seemed that Portugal was not recuperating as expected and people feared that something similar to Greece might happen. However, it respected 2012’s support levels and managed to break the bearish trend line by the beginning of 2017.

PTIDX Weekly oct 2017.png

Now let’s analyze a daily graph to see what is happening now. After a very positive first half of the year, the market hit a resistance level around 5350 and started some kind of correction during the summer, in sync with the European equity markets. But the bulls came back strong from the holidays, managing to recuperate from the losses and break the resistance level. Right now as long as we don’t fall back again, we should expect the Portuguese market to stay strong trying to find the next main resistance levels.

PTIDX Daily oct 2017.png

In my opinion, if everything goes well and the country stays healthy at a macro level, the equity market should be able to recuperate to higher levels, at least around the 7000-9000. This means that this market might have a 40-50% potential.

Value:

If you’ve ever followed a value investor, you will have already realized that they end up investing in those markets that look frightening and full of bears. Therefore, you might have already concluded that Portugal should be interesting for them, at least they might have considered it. If that’s what you’ve thought then let me tell you that you are right.

The easiest way to understand a country is interesting for value investors is to look at what respectable values investors are doing. If you find out that they are turning their eyes to a certain country, you can conclude that the country is likely to be interesting from a value perspective.

If we look to funds like “Cobas” or “AzValor” we can see that they have some very interesting positions in Portugal. For example on companies like Nos, Sonae, Semapa or Mota Engil. Which tells us that this market is interesting to value investors.

Conclusion

Portugal it’s a very interesting market. Investing there can be justified from a value/fundamental approach, technical and also macroeconomical. Therefore I believe that or using a market ETF or by stock picking, we should be able to take advantage of this opportunity and make some returns in our portfolio.

Please, always remember that i’m just a student presenting my ideas and strategies with the hope of generating some debate and learning. Don’t take any of this as advice or professional recomendations because it isnt.

Nuño Pérez del Barrio

Twitter: @nuopb

 

 

 

 

 

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