On the surface, avoiding a single-country ETF that tracks a nation with severe unemployment would appear to be a good idea. Avoiding the iShares MSCI South Africa Index Fund (NYSEArca: EZA) this year would have meant missing out on a loss of 20%. Dodging Egypt, where youth unemployment is double the already dismal national rate of 12%, has also been wise as the Market Vectors Egypt Index ETF (NYSEArca: EGPT) has plunged 27%.
The iShares MSCI Spain Index (NYSEArca: EWP) is proving to be an exception to the ETF-high-unemployment theory. Sort of. Year-to-date, EWP has only incurred a small loss and over the past week, the ETF has traded higher despite the fact that Spain has the Eurozone’s highest rate of joblessness. [Spain, Italy ETFs Holding Up Despite Drama]
Buyers may not be tripping over themselves to get involved with EWP, but they are not exactly running for the exits, either. EWP has hauled in $25.4 million in assets over the past two months, according to Index Universe data. Sliding bond yields have spur some interest in Spanish stocks, but this is still a market fraught with risk. Then again, the notion that high risk can lead to high reward may be what is keeping investors from dumping EWP. [Europe’s Trash ETFs Become Treasure Troves]
EWP is down 2.6% in the past month. However, investors now know that the European Commission forecasts Spain’s debt load next year will be above the euro-area average for the first time in the currency’s history, reports Manuel Baigorri for Bloomberg.
Ratings agencies rate Spain’s sovereign debt barely above junk and Standard & Poor’s said unemployment there will remain “very high, at above 26 percent, at least until there is a sustained economic recovery,” according to Bloomberg.
Something else that the market knows about Spain is that bad loan levels recently ticked higher there. The record high of bad loans as a percentage of all loans in Spain was 11.2% seen in November 2012. That number was 10.87% in April, but the April tally was up from less than 10.5% in March.