Spain takes the bull by the horns

While Wall Street's record highs have monopolized attention in recent weeks, some European indices continue to perform well. Amongst developed markets, the IBEX, the Madrid Stock Exchange index, is even posting the best performance in 2025.

"This time, it's Europe's year." As is often the case, the strong start to the year for European markets has sparked renewed enthusiasm for a region that has been largely shunned by investors in recent years.

Although Europe outperformed Wall Street in the first quarter (with a historic performance gap), the United States has since regained its position, buoyed by the AI theme.

Nevertheless, some European indices continue to lead the race. Amongst developed markets, the Madrid Stock Exchange has posted the best performance of the year.

In Europe, the IBEX is significantly outperforming the major indices. Up 32% in 2025, the index is now only 3% off its 2007 record, just before the great financial crisis.

This performance is particularly thanks to the weight of banks in the Spanish index. The banking sector is the best performing sector of the year in Europe. The Stoxx 600 Banks index has risen 52% since January 1.

Three of the top five companies by market capitalization on the IBEX are banks. Source: MarketScreener

The dunce turned top student

Beyond sector composition, this performance also reflects an economic situation that has improved significantly in recent years.

Spain, a country at the heart of the eurozone crisis in 2011, has since pulled its socks up in terms of its public finances; its deficit is expected to fall below 3% of GDP this year.

This performance has been welcomed by the bond markets, as Spain is borrowing at a lower cost than France, while the spread between the Bono-Bund (Spanish and German rates) is at its lowest level since 2009.

Indeed, while France and Germany are two economies that appear to be stagnating, Spain has been posting strong growth since the end of the Covid pandemic. The Spanish economy is ineed boosted by tourism, a dynamic labor market supported by immigration, funds from the European recovery plan (Next Generation EU), and cheaper energy (Spain is less dependent on gas).

This month, the government raised its growth forecast for 2025 to 2.7%, while Germany is expected to grow by only 0.2% and France by 0.8%.

This healthy economic performance has prompted rating agencies to revise their assessments of Spain. On Friday, Moody's and Fitch upgraded Spain's credit rating to "A3" and "A" respectively. Earlier this month, S&P Global raised its rating from "A" to "A+".