Spain country-specific exchange traded funds were among the best performers Monday after a sharp plunge in the preceding session in response to Catalan’s declaration of independence.
The iShares MSCI Spain Capped ETF (NYSEArca: EWP) surged 2.8% Monday while the iShares Currency Hedged MSCI Spain ETF (NYSEArca: HEWP), which hedges the dollar against the euro, jumped 2.4%.
The knee-jerk reaction to Catalan’s declaration seemed to be overdone as traders expected a return to normalcy. Madrid has already taken steps to control the Catalonian government on Monday for the first time in four decades after the region’s parliament voted for independence last week, reports Adam Samson for the Financial Times.
“Some disruptions related to demonstrations, potential strikes and some violence are all likely. They could directly affect activity and confidence,” Apolline Menut, an economist at Barclays, told the Financial Times.
On Friday, Spanish Prime Minister Mariano Rajoy said he dissolved the Catalan Parliament and called for a snap vote for the region.
Market confidence rebounded following an opinion poll that revealed pro-independence parties would lose their parliamentary majority with a score of 42.5% if elections were held today. The pro-independence Catalan Parliament party held 72 of 135 seats since the last election on 2015, the Straits Times reports.
Related: Spain ETF: Risks Abound as Catalonia Pushes for Independence
The broader Eurozone region also strengthened on improving economic sentiment. According to the European Commission, economic sentiment rose in October for the fifth consecutive month to its highest level since 2001, confirming the economic recovery of the euro currency bloc after a decade-long economic and financial malaise, Reuters reports.
Data show that “political tensions continue to have little effect on economic sentiment this year”, Bert Colijn, senior economist at ING, told Reuters.
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