The iShares MSCI Spain Capped ETF (NYSEArca: EWP) is bouncing back today after tumbling nearly 4% on Tuesday, a performance that made the largest Spain exchange traded fund one of the day’s worst-preforming ETFs.
Political instability in the Eurozone’s fourth-largest economy could further elevate volatility for Spanish stock, potentially punishing investors that have poured into EWP this month. All eyes will be on Greece’s Syriza government in the coming weeks as it manages to settle outstanding debt with creditors. The government will have to scrape together enough cash to pay off a June 5 debt deadline to the International Monetary Fund, but many fear Greece will default on the loan.
Bond watchers were concerned that other peripheral states with growing anti-austerity political parties could push for more favorable debt relief. If creditors give Greece a pass and issues a big write down of Greek debt, there will be greater pressure to extend terms to other member states, which would quickly become economically unviable. [Contagion Fears hit PIIGS ETFs]
“Concern that Spain will follow Greece’s political path is back after Prime Minister Mariano Rajoy’s People’s Party suffered its worst result in a municipal balloting in 24 years. The outcome could presage bigger changes as a general election is due later this year, threatening the economic recovery that Rajoy managed to pull through with four years of austerity,” reports Sofia Horta E Costa for Bloomberg.
Investors have poured $71.4 million into EWP this month and over $302 million into the ETF this quarter, but over the past month the fund has tumbled 2.7%. That loss is roughly 200 basis points worse than that of the SPDR EURO STOXX 50 (NYSEArca: FEZ) over the same period.