The Spanish Ibex 35 index has rebounded on the news that Catalonia has stopped short of signing an independence declaration in order to hold talks with the government in Madrid, paving the way for a potential resolution of the constitutional crisis gripping the country.
The Ibex 35 jumped 1.3% to 10,272 on Wednesday morning, after Catalan leader Carles Puigdemont proposed suspending the effect of the independence declaration in order to hold talks with Madrid.
The euro held steady at $1.1809 on Wednesday morning, while the yield on Spain's 10-year bond fell to 1.66%.
However, despite a positive market reaction, founder and CEO of deVere Group Nigel Green warned independence could have far-reaching consequences for global investors.
He said: "Up until now the chaos in Catalonia had been largely dismissed by global investors as a regional issue.
"However, now that [Catalan President] is effectively saying that Catalonia will become independent come what may, a considerably heightened game of cat and mouse between Barcelona and Madrid has been started."
Green added that in the short term there will be "ongoing and increasing uncertainty", which is likely to create turbulence in domestic and regional markets.
In the long term, Green said independence has the potential to cost Spain as much as 20% of its revenue, and adversely affect investment into both Spain and Catalonia.
He said: "The chaos in Catalonia is a wake-up call for global investors to ensure that they are properly diversified across asset classes, sectors and regions, in order to mitigate the risks of the fall out of this and other key geopolitical events and also - crucially - to take advantage of significant opportunities that they simultaneously present."
Unrest began when Spanish police tried to stop Catalan attempts to conduct an independence referendum on Sunday 1 October.
Hundreds of people were injured in the attempt to vote, but over two million Catalans managed to defy the Spanish government's attempts to stop the referendum from taking place.
Some 2.3 million of the 5.4 million eligible voters managed to cast their votes on Sunday, and some 90% of the voters were in favour of independence.
As a result, President Puigdemont said the region could move towards a unilateral declaration of independence in the immediate future.
He also appealed to the European Union for support, saying "the Catalan citizens have won the right to have an independent state".
Last Tuesday, the crisis escalated as Spanish king Felipe VI publicly condemned the independence vote, forcing investors to pay closer attention to the events in the region.
Spanish bonds were the second most traded in Europe's sovereign debt market early last Wednesday, according to data from MarketAxess, posting a turnaround from their strong performance so far this year.
However, the euro had remained strong throughout last week, up 0.3% to $1.1775 on Wednesday, reversing some of its falls on Monday in reaction to the news.
The US dollar is close to peaking and the risks now seem to be on the downside.
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