The iShares MSCI Spain Capped ETF (NYSEArca: EWP), the largest exchange traded fund tracking stocks in the Eurozone’s fourth-largest economy, slumped to a new 52-week low Monday after election results there are seen as bringing the end of Spain’s two-part political system.
“The conservative party of current Prime Minister Mariano Rajoy won the most votes, but lost its majority. The Socialists received the second-most votes, while anti-austerity Podemos party, which was formed only last year, captured third,” reports CNN. “The country’s next government is likely to be a coalition of parties cobbled together from across the political spectrum.”
Earlier this year, Spain and its financial markets dealt with the issue of Catalonian independence as Catalonia makes up almost one-fifth of Spain’s gross domestic product and one-quarter of exports. Losing the region would put a significant dent in Spain’s ability to dig itself out of the prolonged slump. [Catalonia Independence Hangs Over Spain ETFs]
For their efforts, EWP and other Spain ETFs were rewarded when Standard & Poor’s upgraded the country’s credit rating to BBB+. Spain is the fourth-largest economy in the Eurozone behind Germany, France and Italy.
Investors can also consider the factor based SPDR MSCI Spain Quality Mix ETF (NYSEArca: QESP) as an alternative to the cap-weighted EWP. The quality factor “captures excess returns to stocks that are characterized by low debt, stable earnings growth and other ‘quality’ metrics,” according to MSCI.
QESP is also heavily exposed to the financial services sector with a weight of 33.5% to that group. The factor-based Spain ETF also offers some leverage to the recovering Spanish consumer with over 10% of its weight going to consumer sectors. [Quality Approach to Country ETFs]
“Rajoy has made it clear he will try to form a new government, but negotiations with rival parties could prove to be complicated given the country’s fractured political landscape. Even if a government is formed, it is likely to be weak,” adds CNN.
EWP has slumped 19% this year, good for one of the worst showings among ETFs that track stocks in the PIIGS nations.
iShares MSCI Spain Capped ETF
