"The utilities sector is a key defensive segment": an interview with the head of Freedom24 in Spain

The rapid acceleration of the economy has put Spain among the growth leaders among the EU's largest economies: in 2023-2025, it consistently outperformed France and Germany, exceeding expectations in terms of consumption, investment activity and the labor market. Pedro Santa Cruz, Head of the Spanish office of Freedom24, told Oninvest how the conflict in the Middle East affects the country's economy and what stocks investors are currently betting on.

- According to Goldman Sachs estimates and data for 2023-2025, Spain has made an impressive leap forward, cementing its status as the fastest growing major economy in the eurozone, ahead of Germany and France. Will the accumulated buffer be enough or will the energy crisis and inflation wipe out this economic recovery by the end of the year?

- Spain has built up a larger margin of safety than most major eurozone economies. By the end of 2025, the country's GDP will have grown by 2.8%, compared with about 0.2% in Germany and 0.9% in France. Goldman Sachs forecasts that the Spanish economy will grow by around 1.9% in 2026, almost double the eurozone average. The main drivers of growth are domestic consumption, tourism, migration, a strong labor market and investment from European funds. In addition, since the 2022 crisis, Spain has significantly improved diversification of gas supplies thanks to LNG terminals and relatively low dependence on Russian imports.

However, even this economic structure does not protect the country from the effects of the energy shock: Spain's annual inflation rate was 3.5% in April, down from 3.4% in March, compared to 2.5% in February. Business confidence fell to its lowest level since September 2023, and export orders, as of April, had fallen for three consecutive months. The energy crisis has not yet derailed economic growth, but is already starting to put pressure on corporate margins, consumer demand and inflation expectations.

The main risk for Spain is a slowdown in the economy in the second half of the year. The Central Bank has already raised its inflation forecast for 2026 to 3%, and if the conflict in the Middle East drags on - to almost 6%.

- Inflation in Spain is significantly higher than in the core of the eurozone - Germany, France and Italy. What has been the main factor? How effective do you consider the government's measures to be and will it lead to an extension of the ECB's period of high interest rates?

- The main driver of accelerating inflation in Spain was primarily the increase in fuel and electricity prices. In March, Spanish service companies faced the highest rate of cost growth since April 2023.

The Spanish government is trying to soften the blow with electricity subsidies, household support, tax measures and control of certain tariffs. However, these measures act more as a temporary buffer than as a comprehensive solution. If oil and gas remain expensive for a few more months, the effect of subsidies will begin to fade.

Rising inflation in Spain increases the risk that the regulator will keep rates at a high level for longer. The market has begun to lay "hawkish" scenario: traders are now assessing the likelihood of two or three more rate hikes before the end of 2026, while just a few weeks ago expected a reduction. This is particularly sensitive for Spain, as the country's economy is highly dependent on domestic demand, mortgages, tourism and the real estate market.

- Which three companies in the IBEX 35 Index would you highlight as "safe haven assets" in the current uncertainty?

If we talk specifically about "defensive" stocks within the IBEX 35 in an environment of high inflation, expensive energy and geopolitical uncertainty, I would name three companies: Iberdrola, Endesa and Enagás - the utilities sector and stable dividend companies look like the most logical segment.

Iberdrola is one of the largest energy companies in Europe. Its business is well protected by long-term contracts and stable demand for electricity. It has the added advantage of geographic diversification: the company operates in Spain, the UK, the US, Brazil and other countries. In an environment of inflation and rising interest rates, utilities can shift some costs to tariffs and maintain a stable cash flow.

Endesa is interesting because of its high dividend yield of about 4%. Unlike industrial companies or banks, Endesa benefits from high electricity and gas prices, and remains relatively resilient even in a slowing economy.

Enagás ' defensive profile is based on predictable cash flows and lower sensitivity to the economic cycle than banks or the industrial sector. In the current environment, this is particularly valuable for investors looking to reduce portfolio volatility. Enagás remains one of the most interesting dividend stories in the Spanish market, with a yield of around 6%.

- The modern defense industry now includes data analytics, space technology, and artificial intelligence. How does this change the position of Spanish tech giants such as Indra? Should investors enter this sector now that valuations are at historic highs?

- Modern defense is indeed increasingly less dependent on producing only tanks and shells - the main growth is now concentrated in control systems, satellites, cybersecurity, AI, drones and cloud-based military technologies. Indra coordinates the largest number of defense projects in Spain and plays a key role in Europe's FCAS (sixth-generation fighter aircraft) program, where data and AI are as important as the aircraft platform itself. Financially, the company is looking very strong, with revenues up 13% to €5.46 billion in 2025 and an order book of more than €16 billion, up 122% from a year earlier.

The market has already largely priced in this thesis: Indra shares are up about 180% since 2025, and a P/E ratio of about 20 looks high for an industrial company. Additional risks are government dependence and political influence. It is wise to enter this sector during a correction: companies like Indra have strong long-term potential, but volatility after a rally can remain high.

- Against the backdrop of high interest rates, Spain's financial sector has become a growth driver. Will this trend continue in the second half of 2026?

- Spain's financial sector is likely to remain strong, but the growth driver is gradually shifting. While high ECB rates and record net interest margins were the main drivers in 2023-2025, now fees, credit growth and buyback programs are becoming more important.

Spanish banks have proven that they can deliver record profits even when rates are falling: in 2025, the country's six largest banks earned around €34 billion. However, the growth potential is no longer the same, banks are no longer getting the same strong impetus from rates. Therefore, the baseline scenario for the second half of 2026 is not the end of the rally, but a shift to more selective growth. Santander and Banco Bilbao Vizcaya Argentaria (BBVA) could perform better than the market - thanks to international diversification.

- Spain's energy sector is now lagging behind the market due to oil and gas prices. Is this an "entry point" for long-term investors in renewable energy?

- This could be an entry point, but only into specific companies. The market is now facing two opposing forces: Spain remains one of the most attractive markets for solar and wind generation, but the sector is under pressure due to expensive financing and grid congestion. Investors should target companies with strong balance sheets and access to cheap capital.

Among the favorites: Iberdrola - a combination of green energy and regulated grid business. Acciona Energía is a pure bet on renewable energy. The stock has started to be revalued by the market after strong results for 2025. Solaria - the riskiest but potentially profitable option. The company focuses on solar photovoltaic systems and powering data centers, with demand growing due to AI.

- What portfolio composition would you recommend for an investor in Spanish equities until the end of 2026?

- For a typical retail investor with a moderate risk profile, I would advise investing around 45-50% in equities, with a focus on global ETFs, as well as Spanish banks, utilities and defense. 25-30% in short-term government and corporate bonds with maturities of 1-3 years, and 10% in gold and commodity assets, as protection against geopolitical risks. In addition, to be able to buy interesting assets on drawdowns, I would advise keeping about 10-15% in cash.

- What is your forecast for the IBEX 35 index? Growth up to 20,000 points or correction?

- IBEX 35 remains in a strong long-term uptrend. The March correction to the 16,200-16,300 points zone now looks more like a typical pullback within a bull market. Technically, as long as the index remains above this zone, the base case remains positive. The key resistance level is the historical high near 18,575 points. A solid break above this level would open the way first to 19,000 and then to 19,500-20,000 points by the end of the year.

The main risk is a new energy shock. If oil prices consolidate above $100, it could trigger a sharp correction. Fundamentally, however, the Spanish market retains strong drivers in the form of the banking and energy sectors. The baseline forecast for the end of 2026 is a move towards 19,000 points with the possibility of a test of 20,000 if the main sectors remain positive, which would mean growth of 7-12%.

This article was AI-translated and verified by a human editor