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With all eyes on Brexit, is the world neglecting a potentially more concerning story from the PIIGS economies?

The world has been discussing, obsessing and debating over the reports and predictions surrounding Brexit for quite some time. But, although the impact of the ongoing Brexit negotiations has led to a poor performance for UK equities, there is a very real concern that is not on the news agenda – and that is the PIIGS economies.

With the exception of Ireland, funds dedicated to the PIIGS markets are – in relative terms – seeing money pulled out at a faster rate than UK Equity Funds. While a flight to safety in the case of Portugal and Greece may come as no surprise, the lack of appetite for exposure to Spain is most definitely counterintuitive for a market whose rebound from the post-financial crisis depths is still driving GDP growth of over 2% at a time when Italy has slipped back into recession.

The root causes of this chill towards Spain can be traced to the challenges that Catalan separatists and an austerity weary public pose for Spain’s minority government, the third highest rate of unemployment in Europe at 14% (33% for youth…), slowing GDP growth and the potential risks to trade and tourism posed by a simultaneous ‘hard Brexit’ and Italy’s latest recession.

It would appear that despite the Eurozone’s fourth-largest economy returning to its pre-crisis size in 2017 and hailed as the currency bloc’s ‘bright-spot’ , the austerity of the last decade has left its mark and Spain remains, in the eyes of the markets, vulnerable.

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