When it comes to Spain's economic revival, there's no need to unearth any hidden explanations. The May 21st edition of BusinessWeek shows that, during the first half of the current decade, the immigrant population of Spain grew annually at 20%. Meanwhile, the average annual growth in the Eurozone is approximately 2%.
Regardless of the politics that surrounds legal immigration, as well as illegal movement across borders, there's little doubt that Spain has been a beneficiary of new residents. The Spanish economy has flourished, outpacing the Eurozone's average annual growth every year from 2000 through 2006.
How has this played out in respective global markets thus far? Surprisingly, the iShares MSCI Spain Index (EWP) has only outperformed the iShares S&P 350 Europe Index (IEV) by about 10% over the last 2 years.
More telling has been Spain's underperformance by a few percentage points in the last few months. Forbes.com has suggested that Spain may struggle through a housing or lending crisis similar to the U.S. due to questionable loans that have been provided to the working-class immigrants, many of whom may be laid off from construction projects. The writers put it this way. "It does not strain the imagination to see how many of these Spanish lenders could suffer the same fate as the countless U.S. subprime mortgage companies that collapsed earlier this year..."
In theory, Spain (EWP) may be a worthy investment... and the country does appear to have a tremendous amount going for it. Yet a rotation away from risk might require one to favor Europe as a whole via the iShares S&P Europe 350 Index (IEV) or the more ubiquitous proxy, the iShares MSCI EAFE Index (EFA).
EWP 1-yr chart:
Disclosure statement: Some of Pacific Park’s investment clients may hold positions in any of the investments mentioned above.