We recommend a relative value trade by going Long the IBEX 35 Index and Shorting the DAX Index, supported by a historically wide valuation discount, stronger recent earnings growth, and more resilient margin dynamics.
The IBEX’s high exposure to rate-sensitive, inexpensive Financials, combined with defensive Utilities, remains appealing despite the strong performance YtD. On the other hand, the DAX’s cyclical tilt leaves it more exposed to slowing industrial momentum due to tariff uncertainty and earnings normalisation risk, while its trading relative to the IBEX is as expensive as ever. Good news on Germany’s infrastructure and defence plans have already been generously discounted as we recently wrote in our Global Defence note.