Late Saturday, eurozone leaders announced a plan to lend Spain up to $125 billion in an effort to stabilize the Spanish banking system. So far, the global markets have responded very well to the news. As I write this, Japan's Nikkei is higher by more than 2%, the euro (FXE) is higher by nearly 1%, and U.S. equity futures are sharply higher. While this news will certainly have an impact on almost all markets, the impact will be felt most in the names mentioned in this article.
iShares MSCI Spain Index Fund (EWP)
This ETF should move sharply higher as the news of a bailout is likely to send Spanish stocks surging. EWP is a good way to play the bailout for investors who want broad exposure to Spain.
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EWP data by YCharts
Banco Santander SA (STD)
While based in Spain, STD is not only a Spanish play. In fact, STD is the biggest bank in the eurozone. STD gets a large portion of its profits from its operations in Latin America. However, fears about the company's exposure to Spain have certainly weighed on shares. It remains to be seen if STD needs aid as it is considered one of the best capitalized banks in Spain. Even if STD does not receive aid, it will certainly benefit from the stabilization of the Spanish banking system.
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STD data by YCharts
Banco Bilbao Vizcaya Argentaria SA (BBVA)
Much like STD, BBVA is a large bank based in Spain with operations throughout much of the world. In total, BBVA has operations in 32 countries. Like STD, it remains to be seen if BBVA will take part in the bank bailout. In any event, the bailout should send share of BBVA higher over the short-term.
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BBVA data by YCharts
Telefonica SA (TEF)
TEF is a Spanish based telecommunications company. However, the company does have significant operations outside of Spain. In addition to its Spanish unit, TEF has a Europe division and a Latin America Division. TEF is certainty cheap as it is trading at just 6.3 times forward earnings. However, TEF does have a significant amount of debt, over $84 billion, that could be a problem for the company. The bailout should send TEF shares higher as the stock has been hit hard on fears over the outlook for the Spanish economy.
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TEF data by YCharts
My Take
In my opinion, short-term traders should use the lift on news of a Spanish bailout to sell the rally. As shown below, it is important to realize that all of the Spanish plays rallied significantly last week.
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IBEX data by YCharts
Last week's rally was a very typical "buy the rumor" type of move as rumors of a Spanish banking bailout surfaced. However, we are now probably entering the "sell the news" part of this trade. While it is nice that Spain is getting a banking bailout, the weakness in the economy remains. Additionally, concerns over a potential Greek exit are likely to keep pressure on European markets over the short-term. I believe long-term investors should consider holding onto these beaten down Spanish plays as the banking bailout may prove to be enough to put the worst of the Spanish crisis behind us. While STD, BBVA, TEF, and EWP may pull back as some of the euphoria wears off, the positive impact of re-capitalizing the banking sector should not be overlooked.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
