From siestas to sprints, the Spanish stock market surprises investors

Until recently, investors mostly saw Spain as beaches, siestas and debt. Today, things are different. The Spanish economy has been growing faster than the rest of the eurozone for several years, employment figures are continuing to rise and the debt ratio is falling. Is it time to take the plunge as an investor?

After the 2008 financial crisis, Spain sank into a very deep hole. For years, the country was stuck with high unemployment figures (as high as 27%), unstable banks, a budget deficit that soared to over 11% of GDP and a sluggish real estate market (source 1 and source 2).

Nowadays, the parallels with this dark period are far away in the distance. Spain has even been the best-in-class in the eurozone for several years, with its economy growing by 2.5% in 2023, 3.5% in 2024 and 2.9% last year. By way of comparison, the eurozone as a whole grew by 0.4%, 0.9% and 1.2%, respectively (source) to make Spain one of the fastest-growing economies in the region.

What is driving Spanish growth?

1. Immigration as an economic driver

One of the most striking explanations is immigration. Since 2019, more than 1.2 million foreign workers have been added to the labour market, primarily from Latin America (source). Furthermore, almost half of all jobs created since 2022 have been filled by newcomers (source). Forecasts predict that the working population will increase by around 400,000 people per year in 2026 and 2027, largely due to immigration (source). Spain, however, is struggling with an ageing population, as more than two out of ten Spaniards are over sixty-five.

The influx has not only provided additional labour and improved the country's demographic outlook, but also boosted consumption and domestic demand. This led to Spain achieving a record high of more than twenty-one million working people in 2024, and unemployment falling to 10.4% in 2025 – the lowest level seen since the financial crisis (source). That said, Spain is still worse off than the eurozone average (6.4%), but things are already far better than observed during the darker days.

2. More than just tourism

Tourism remains important for Spain, with the sector accounting for more than 15% of the economy. Foreign tourists even spent 28% more in 2025 than they did in 2019 (source 1 and source 2). Yet the economic story has become much broader. Spain is increasingly exporting high-quality services such as technology, engineering and IT consultancy. Exports of non-tourism services increased by almost 12% in 2025 (source).

Such diversification makes the economy less vulnerable. Whereas in the past every fall in tourism was instantly visible in the economic figures, growth in other sectors now provides a buffer.

3. European Recovery Fund and investments

Spain received support totalling more than €163 billion through the NextGenerationEU programme. These resources are focused on digitalisation, green energy and infrastructure. While critics note that the impact remains limited, the investments have helped to stimulate the economy. In addition, Spain has committed to investing nearly €40 billion in defence, giving the economy a further boost (source).

4. A strong banking sector

Spanish banks – including Santander, BBVA and CaixaBank – have seen a remarkable recovery. After years of restructuring and reorganisation, they are now more profitable than ever. Moreover, they can boast a solid capital position and strict risk management after the lessons learned from the financial crisis. Confidence in Spain's finances has recovered such that all major credit rating agencies (S&P, Moody's and Fitch) upgraded Spanish government bonds in 2025. The Spanish risk premium (the additional return that investors demand to lend money to Spain instead of Germany) even fell to just 50 basis points, which was lower than France (source).

IBEX 35: Europe's star index

The economic recovery was also directly reflected on the stock market. The IBEX 35, the main Spanish stock market index, rose by an impressive 49% in 2025, outperforming all other major European indices. By way of comparison, the German DAX rose by around 23%, the BEL 20 by 19%, the French CAC 40 by 10% and the Eurostoxx 50 by 18% (source).

The IBEX 35 returned to its historic high of around 16,600 points in November 2025 for the first time since 2007 –. something that is all the more remarkable given many other European indices broke through their highs of 2007 years ago. Indeed, the Spanish stock market set a new record at the end of 2025, passing 17,000 points (source).

What makes the IBEX 35 so strong?

1. Bank shares dominate

Bank shares make up an important 40% of the IBEX 35 (source). Banco Santander alone accounts for more than 16% of the weighting. Bank shares returned the best performance in 2025, with the IBEX 35 Banks Index rising by almost 120% (source).

This strong performance is the result of record earnings, attractive dividends and large-scale purchases of shares. Spanish listed companies (not just banks) purchased €10.5 billion in treasury shares through to November 2025 (source).

2. Energy and infrastructure

The energy and construction sectors are also returning excellent results. Companies such as Iberdrola (green energy), Repsol (oil and gas) and construction giant ACS are benefiting from investments in renewable energy and infrastructure projects.

What's more, a fantastic development is that Spain now generates a record 56.5% of its electricity from renewable sources (solar, wind and hydroelectric), making the country an attractive option for energy-intensive data centres and battery production (source).

3. Attractive prices

Despite the strong rally, Spanish shares remain relatively cheap. The IBEX 35 is trading at a price/earnings ratio of around 13; this is 2.3 points below the historical average seen in the last thirty-seven years and well below the 28 seen in the US markets. The dividend yield also catches the attention, standing at more than 4% on average and one of the highest in Europe. Indeed, Spanish listed companies paid out an impressive €37.7 billion in dividends up to November 2025, recording their second-highest figure ever and an increase of almost 10% when compared to 2024 (source).

The other side of the coin

Yet no matter how impressive the growth may be, there are also important observations and risks to bear in mind:

1. Low productivity remains an issue

Spain's productivity per employee is still below pre-pandemic levels. Although an improvement has been seen in the productivity per hour worked (particularly in the services sector), overall productivity remains a concern (source).

Around half of the increase in GDP is driven by employment figures rather than efficiency gains. GDP per capita is still 8% below the European average (source).

The low productivity can be put down to several factors: limited investment in research and development (Spanish companies only invest one-sixth of the amount invested by EU companies), an education system that is not perfectly aligned to the labour market, and an economy dominated by small and medium-sized enterprises (99.8% of companies have fewer than 250 employees) (source).

2. Housing crisis

Housing prices rose by almost 10% in the first half of 2025, making a large dent in the growth in wages. At present, there is a housing shortage of around 700,000 homes. To halve this deficit by 2030, housing investments should rise to 10% of GDP, which is close to the level seen during the 2007 real estate bubble (11.7%) (source).

In cities such as Madrid, Barcelona, Malaga and Valencia in particular, many people have been priced out of the property market. This risks undermining social cohesion and putting the brakes on consumption (source).

3. Political division

The Spanish government finds itself in a fragile coalition without a stable majority. It could not approve a budget in either 2024 or 2025, a fact that complicates structural reforms in the areas of taxation, pensions and the labour market. The Financial Times describes the situation as growth in the wrongway – impressive figures without profound structural renewal (source).

4. Concentration risk in the IBEX

The IBEX 35 is highly concentrated, with five of the thirty-five companies in the index representing more than half of the total market capitalisation (source). This means that the entire index may suffer if the five companies in question (Inditex, Santander, Iberdrola, BBVA and CaixaBank) return disappointing results. This mechanism is not unique to Spain, as you'll see something similar if you look at the United States today. The S&P 500 may appear to have broad diversification, but in practice the index is primarily driven by a handful of tech giants.

How to invest in the Spanish stock market

There are several options available if you want to leverage Spain's growth for yourself. Each approach comes with its own advantages and disadvantages, depending on your investment objectives, risk appetite and the time you have at your disposal.

1. Individual shares

What does this involve? You buy shares in Spanish listed companies directly. The IBEX 35 has thirty-five companies, but there are more than 140 companies listed on the main Spanish stock market in total. The sectors range from banking and energy to consumer goods, telecommunications, construction and infrastructure.

Advantages:

• Full control: you decide which companies to invest in
• Option to select industries or companies you have the greatest confidence in
• Immediate exposure to dividends and potential price gains

Disadvantages:

• Requires in-depth knowledge of individual companies and sectors
• Time-consuming: you need to track results, news reports and market conditions
• Concentration risk: if one share performs poorly, it can affect a large part of your portfolio
• Higher transaction fees if you invest in a large number of different shares

2. Trackers (ETFs)

What does this involve? Exchange-traded funds (ETFs) are investment funds that track an index, such as the IBEX 35 or broader European indices that include Spanish companies. You can spread your portfolio across dozens of companies with a single purchase.

Advantages:

• Broad diversification in one transaction: you spread your risk across the Spanish market as a whole
• Low costs: the annual management fee is usually between 0.20% and 0.50%
• Simple: no time-consuming analysis of individual companies required
• Liquidity: ETFs are traded like shares and are easy to buy and sell
• Transparency: you know exactly which shares are present in the ETF

Disadvantages:

• You track the market: an ETF for the IBEX 35 also contains the worst-performing companies
• Concentration risk is still in play: you remain heavily exposed to the financial sector, as financial shares make up almost 40% of the IBEX 35
• No option to avoid specific sectors or companies

3. Active fund management

What does this involve? In actively managed investment funds, a team of professionals selects the best Spanish (or southern European) shares. They try to beat the market by making smart decisions regarding which companies to include and which to ignore.

Advantages:

• Professional management: experienced fund managers analyse the market and select promising shares
• Flexibility: managers can react quickly to changing market conditions
• Opportunity to beat the market: good fund managers can achieve better returns than the index
• Risk management: active managers can take a more defensive approach to investing in uncertain times
• Access to expertise on local markets, company culture and regulatory requirements

Disadvantages:

• Higher costs: actively managed funds often charge an annual management fee of 1% to 2%
• No guarantee of outperformance: many active funds perform worse than the index in the long term
• Less transparency: you don't always know which shares the fund holds straight away
• Depends on the quality of the fund manager

Before investing, be sure to read up on the key features and risks of financial instruments.

Want to invest in Spanish shares?

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• Click on Advanced at the top of the search window
• Search for the terms IBEX, Spain or the name of the specific share, fund or tracker you want to invest in