Spain ETFs Are Soaring

by: Alan Longbon

Since writing about Spain in February 2017, this ETF is up 40% in 12 months.

Fiscal flows are sadly decelerating and the best times could now well be over.

Rising euro strength also puts the current account surplus in danger.

I last wrote about Spain in this article here in February 2017. Since that time the iShares MSCI Spain Capped ETF (NYSEARCA: EWP) has risen over 30% and has gained over 40% in the last 12 months. This is an impressive gain and worthy of a closer look to understand how and why this happened.

The Spanish stock market has a lot to dance about.

The purpose of the review is to see if the local stock market is worth investing in via exchange traded funds (ETFs). These funds are available to all investors, even for non-residents or those not able to trade in the stock market of that country directly.

EWP is at the second top on the table.

The chart below is from early December 2016. In that time positions have changed a lot. Spain was nowhere to be seen and was at best a speculative buy in my last report.

One notices from the list the following items:

  1. Latin American countries have been replaced by the Europeans, except for Brazil.
  2. Euroland countries now dominate the top 10.


This sector flow national accounting analysis will begin with the government sector.

Government Sector

The government budget picture is shown in the charts below.

The chart shows that the government sector has been net adding to the private sector and that overall, this net add was trending smaller. In the last year, this trend has accelerated, and government spending has about halved on what it was in 2016. A result of about 2% of GDP is likely as a full-year result.

As a member of the European Union, Spain has to stay within the fiscal guidelines of the Fiscal Compact, and this calls for government deficits no larger than 3% and government debt no more than 60% of GDP.

No doubt the Spanish government is trying to comply with the EU Fiscal Compact agreement whether it is good for the economy or not.

External Sector

The near-term current account position is shown in the chart below:

The chart shows that the current account is a net add to the private sector. Like the government sector flows, this is positive for the private sector. The way the numbers are trending a 2.2% of GDP result is likely for 2017 and is another reason why the stock market is doing so well.

The recent strength in the euro puts the current account surplus in danger. A stronger currency means more expensive exports for overseas consumers and less will be demanded at a higher price than a lower one.

Private Sector

The private sector can also produce income flows through private credit creation. The chart below shows total loans to the private sector.

The downward plunge in credit creation continues. In Spain, more money is being paid back to banks than is being created through new loan generation.

Conclusion, Recommendation, and Summary

When we take our inputs and place them in our formula, we can calculate the following sectoral flow result based as a percentage of GDP. GDP is rising, and the absolute numbers are greater each year as well.

Private Sector Credit Creation


External Sector


Government Sector










2016 -2.4% 2.2% 4.5%


The fiscal flows, while positive overall, are decelerating. The deceleration is largely due to the government spending less. The motivation for the government spending less is no doubt pressure from the EU to comply with the Fiscal Compact straight jacket; one size fits all budget rules.

If one wished to invest in Spain, and the good times could now be about to peak and turn the other way, there are four mainstream ETFs that one can use to do so.

  • iShares MSCI Spain Capped ETF
  • iShares Currency Hedged MSCI Spain ETF (NYSEARCA:HEWP)
  • Deutsche X-trackers MSCI Spain Hedged Equity ETF (BATS:DBSP)

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.