Spanish stocks closed around 2 percent lower on Monday amid heightened political uncertainty following local elections that analysts say has ushered in a new "era" for the country.
Regional and local elections on Sunday saw Spain's ruling People's Party suffer its worst result in more than 20 years in a verdict of prime minister Mariano Rajoy's four years of austerity measures. The rise of new anti-austerity parties signals an uncertain period of coalition across the country, Europe's fifth biggest economy, experts warn.
"These elections have opened a new era for Spain and that is an era of political fragmentation," Antonio Barroso, senior vice-president at consultancy firm Teneo Intelligence, told CNBC on Monday.
Investors nervously reacted to the poll results, sending Spain's main IBEX index down as much as 2.2 percent. The index underperformed broader European shares, which only traded slightly slower.
Analysts said that while the stakes in the local election were different to the national election due later this year, Sunday's vote did provide a taster of voter sentiment.
Spain has been dominated by two political parties – the ruling People's Party and the opposition Socialists – since the end of dictatorship four decades ago. They are being challenged by two new parties: the anti-austerity Podemos, which stands for "We Can," and the market-friendly Ciudadanos "Citizens."
According to a report by Reuters, the Socialists and People's Party will have to negotiate coalitions with smaller parties in the 13 of Spain's 17 regions that voted on Sunday alongside over 8,000 towns and cities.
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"We now have four parties that matter instead of two and they will have to cooperate in order for the country to move forward," Barroso said. "I think investors will essentially have to get used to more political uncertainty going forward."