What started out as a measure for saving the financial sector from market-pounding volatility and uncertainty could give rise to disastrous and opposite results.
Experts doubted the effectiveness of banning short selling financial stocks when the ban was first placed, and without a doubt, lifting the ban gave bears an even stronger reason to buy financials. Most bearish investors were itching to establish short positions and making them wait merely postponed a new wave of bearish activity in the Spanish financial sector.
The first reaction after the Comisión Nacional del Mercado de Valores (CNMV), Spain's stock market regulator, decided to lift the ban that had been in effect since August was a strong attack on the entire banking sector. 5 billion euros in market capitalization fled the sector. Last Thursday Bankia, Popular and CaixaBank posted registered losses of more than 6%.
Soraya Sáenz Santamaria, the Deputy Prime Minister of Spain, said yesterday that lifting the ban after market close last Thursday caused the stock market to plunge 2.1% the next day. In this sense, Santamaria did not hesitate signaling to the CNMV: "The CNMV made the decision and is taking responsibility for that decision and the timing in which they made it."
The weakness evident the stock market could be only the beginning. "What happened Thursday was only the start," said Félix González, an analyst from Capitalia Familiar. He said that from now on, the bears will establish positions in financials in a "strategic" way because they still view it as
"a risky sector." González added, "Especially in Spain's case, because of the financial reforms that are taking place."
