Why Is Spain's ETF Up While Its Economic Data Is Down?

Spain’s economic problems stemming from the housing collapse may not improve anytime soon, but the banking industry is propping up the country-related exchange traded fund (ETF).

The International Monetary Fund (IMF) projects Spain’s unemployment rate to top off at 20.2% in 2010 after hitting 18% by the end of 2009, according to Barcelona Reporter. The IMF also estimates that the country’s gross national product (GNP) will fall 3.8% this year and diminish 0.7% next year.

The economic adversities afflicting Spain can be traced back to the construction industry, and housing prices are forecast to fall for a minimum of 12 months. For more stories on how the downturn has affected Europe, click here.

The Spanish banking giant Banco Santander, S.A. (NYSE: STD) plans to sell around 16% of its Brazilian operations for $7 billion, accounting for 18% of profit, and the unit was priced around 10% above the price-to-earnings multiples on competitor banks, writes Don Dion for TheStreet.

Potential investors of iShares MSCI Spain Index (NYSEArca: EWP) should note that unemployment, manufacturing and retail data, along with low interest rate mortgage, may elevate risks to investing in EWP, comments Dion. EWP’s good performance so far may be because of the high allocation into financials, with a 46% weighting, and low allocation to materials.

• iShares MSCI Spain Index (NYSEArca: EWP): up 36.5% year-to-date; Banco Santander is 23.2%

Comments

[jmezerhane:]

The major companies, Santander, Telefonica, Iberdrola, BBVA, Repsol and Inditex represent about of 80% of the index performance. All those companies have more than 50% of the profit outside of Spain, so the index does not reflect very accurate the real situation of the Spanish economy.
Santander, Telefonica, Iberdrola, BBVA, Inditex are also the top 3 bigger companies compared with his European/USA peers

Oct 14 09:50 AM