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.

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This article has 2 comments! Add yours below...

This article has 2 comments:

  • erubiera
    May 16 06:26 PM
    Everyone in Spain is expecting the bust of the R/E bubble. I just came back from a month-long trip to Europe, including Spain. I was aghast to see 100%, 50 year mortgages being offered. And their ARMs are indexed to the Euribor, which runs about 1% lower than the Libor, the commonly used index in the U.S. Watch out!! On the other hand, short-term, EWP continues strong vs the other two ETFs mentioned.
  • OWCC
    May 16 10:08 PM
    According to "The Economist", Spain last year international merchandise trade or "Trade Balance" was negative in the extraordinary sum of U$S 115.9 billion dollars.
    Germany in the other hand had a "Trade Balance" of + U$S 213 billion dollars, China+U$S 200,9, Argentina + U$S 11.7 and Japan + U$S 84,7 billions, etc

    Given the size of the Spanish economy the Spanish deficit is larger than the one of the US

    What is the significance of this? Watch out!

    Thanks

    OWCC
 
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