Spain Is No PIG!

| About: iShares MSCI (EWP)
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Spain is in better shape than the other PIGS-countries.

From a valuation point of view Spain is a buy.

Momentum is turning positive.


In the 1990s the term PIGS was used for the first time in reference to the growing debt and economic vulnerability of the Southern European countries Portugal, Italy, Greece and Spain. Before they joined the EU they regularly devalued their currency in order to remain competitive. The second time the PIGS came to the forefront was during the Global Financial Crisis that hit those countries heavily.

Contrary to the other three countries, Spain (led by Prime Minister Mariano Rajoy) managed to put its public finances in order and to solve the problems in the banking sector. This is not (yet?) the case in Italy, Portugal and Greece.

A wall of worry

Does this mean that the sky is blue in Spain? Certainly not. Spain is part of the European Union and with the coming elections in France, Germany and The Netherlands everybody is anxious to know the outcome and the political (and economical) consequences.

Also within its borders Spain has to deal with problems like the Catalan wish for independence. The Catalan Prime Minister Carles Puigdemont plans a binding referendum in 2017…

When new problems surface in e.g. the Italian banking sector some collateral damage cannot be excluded.

Economic environment

The Eurozone economy made a strong start to 2017 according to Markit. The Eurozone Composite PMI for January came out at 54.4.

Also in Spain there is a clear economic tailwind. The Markit Spain Manufacturing PMI went up to 55.6 in January of 2017 from 55.3 in the previous month, and remains in a clear uptrend as we can see in Graph 1.

Graph 1: Markit Spain Manufacturing PMI

The Markit Spain Services PMI fell to 54.2 in January 2017 from 55 in the previous month, but remains in very healthy economic territory.

Graph 2: Markit Spain Services PMI


It's no secret that Europe is much cheaper that the United States. Compared to the Eurozone, Spain (iShares MSCI Spain Capped ETF (NYSEARCA: EWP) has an even cheaper valuation, as you can see in Table 1.

Table 1: Valuation

We believe this undervaluation is undeserved and expect Spain to get a valuation more in line with the Eurozone. The Eurozone's valuation itself also has room to grow!

Price momentum

On the graph of the iShares MSCI Spain Capped ETF (NYSEARCA: EWP) we can clearly see that the momentum turned positive.


The combination of an economic tailwind, improving earnings forecasts, positive price momentum and cheap valuation are the perfect cocktail: BUY Spain!

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