The iShares MSCI Spain Capped ETF (NYSEArca: EWP) slumped nearly 2% last Friday as Catalonia’s parliament moved to declare its independence from Spain while Spain itself moved to take over Catalonia.
EWP tracks the MSCI Spain 25/50 and holds 26 stocks. Like many single-country ETFs, EWP is top heavy at the sector with financial services names accounting for over 40% of the ETF’s weight. That is more than double the fund’s exposure to its second-largest sector weight, industrials. Spain is the Eurozone’s fourth-largest economy.
“The outcome is still up in the air and tensions are likely to linger for months, but Spanish markets have been relatively steady in recent weeks,” said BlackRock in a note out Friday. “Stocks are only modestly lower and bond yields are weaker. However, the conflict is having an effect on some measures of the creditworthiness of Spanish sovereign debt. Spain fell three notches to the 40th spot in the latest quarterly update of our BlackRock Sovereign Risk Index (BSRI) rankings of government debt in 60 countries.”
The relationship between Spain and Catalonia could grow even more contentious in the near-term. Spain could strip the territory of administrative powers and pursue criminal charges against the leaders of the independence movement.