The IBEX 35 Index is an index that summarizes the performance of the 35 largest companies listed on the Madrid Stock Exchange. Created in 1992, today it is considered the main thermometer for evaluating the economic and financial health of Spain. Let’s find out in detail what the characteristics of the IBEX 35 index are, which companies make it up and what investment opportunities it offers investors.
What is the IBEX 35 Index
The IBEX 35 index, acronym that stands for Índice Bursátil Español, was established on January 14, 1992, thus becoming the main index of the Iberian stock market. It is a value-weighted index, that is, weighted according to capitalization. As is the case with the US Dow Jones, the companies incorporated into the basket do not exert the same influence, but are weighted according to their market capitalization. The index has no restrictions on foreign investment: at the moment, more than 40% of ownership is in the hands of non-Iberian funds, mainly American, British and Norwegian.
Composition of the Index: Which Companies it Includes
The IBEX 35 index, as can be easily guessed from its name, includes 35 companies, which alone account for almost 90% of all the liquidity traded on the Spanish Stock Exchange. The parameters required to be included in the index are market capitalization, the degree of liquidity of the securities and the number of shares in circulation.
Usually, the 35 companies that have shown the highest volumes in the previous six months are included, although the average capitalization of a single security must be at least 0.3% of the total capitalization of the IBEX.
The most predominant sectors are energy and banking. With reference to the former, it should be noted the presence of Endesa, a company 70% controlled by Enel. As regards the banking sector, on the other hand, the main companies in the index are some of the major Spanish giants, such as BBVA, CaixaBank and Banco Santander. In particular, the latter has been the most important bank present in Spain for 30 years.
Another relevant company that is part of the index is Pharma Mar, a pharmaceutical company whose business volume literally exploded during the pandemic, allowing it to become part of the basket. Also present is Repsol, a company active in all sectors related to the oil and gas industry. Although it has not yet recovered to pre-pandemic levels, the recovery of the economy should be able to drag the oil sector along in the medium term.
Quotation and Historical Trend
Before investing in a stock index, it is advisable to carry out an accurate technical analysis in order to understand the historical trend of the instrument. Thanks to the observation of the graphs, it is possible to identify some topical moments of the past and trace them back to specific economic phases, in order to orient one’s decisions to establish the correct moment of entry.
The current value of the index is 8,724.5 points. In the first half of 2000, a series of phenomenal results allowed the IBEX to establish itself as one of the most important indices in Europe. The all-time high was touched in December 2008, a sign that in the following decade the index underperformed and failed to benefit from the stock market rally following the financial crisis.
In general, the index has shown a volatile historical trend, with frequent daily fluctuations. Certainly, savvy day traders have been able to take advantage of the many opportunities that have arisen to make significant profits by taking advantage of the continuous price misalignments that the IBEX 35 has shown in recent years.
How to Invest in the IBEX 35
Stock indices represent one of the favorite tools for traders to invest in the stock markets. One of the most popular ways to invest is to turn to regulated online trading platforms with CFDs, thanks to which you can access the markets conveniently and effectively. CFDs (Contracts for Difference) are derivatives that allow you to speculate on a certain financial asset both upwards and downwards.
It was mentioned earlier that platforms must be regulated. In fact, the first step to take before investing is to choose a broker. In order to assess the safety and validity of a trading platform it is necessary to consider numerous aspects, such as the years of activity in the sector or the possession of certain licenses. It is this last characteristic that allows traders to negotiate financial instruments with the certainty of dealing with a safe operator. For this purpose, it is important that brokers have the authorization to operate granted by the main international supervisory institutions, such as CySEC, FCA or CONSOB.
One of the most popular brokers is undoubtedly eToro, a trading platform with an innovative character and very competitive costs. Thanks to a user-friendly interface, the possibility of starting from a demo account and the presence of advanced services (above all CopyTrading), eToro represents one of the best solutions to invest on stock market indices (and not only).
Forecasts for the Future
In order to analyze the convenience of investing in the IBEX 35 index it is necessary to consider some far-reaching factors. The pandemic is continuing to exert a significant impact on financial markets and the geopolitical picture shows tensions in Eastern Europe that could also dampen stock performance.
Certainly this is an index that incorporates the most important companies in Spain and enjoys broad diversification.
Furthermore, the basket invests mainly in the energy sector, which is expected to recover strongly after an excellent 2020 and a subdued 2022. One of the potential downsides relates to the fact that the Brexit continues to have repercussions on the IBEX 35, much more than on other indices.