ETF XRAY

Is Spanish ETF Facing Slowdown?

The Spain exchange-traded fund (EWP) has been a superstar with its economy growing for fourteen straight years but its stock market stumbled a bit last week losing 3% of its value. Some are questioning whether its best days are behind it as construction and property markets cool a bit.

But many Spanish firms like Santander, a huge banking group, and Ferrovial, a construction giant, have spent billions buying foreign businesses. The Economist highlights that much of this expansion overseas has been financed with large borrowings leading to a rising level of corporate debt.

The Spanish economy is a mix of world class companies, huge inflows of tourists but little domestic manufacturing and overall poor productivity. Can the boom continue and will it hit a speed bump or slow down in a manageable way as overheated property markets in both Australia and the UK have evolved. In addition, younger people in Spain are oozing with confidence in part due to sharp improvements in education. Spain in some ways resembles a bit the Irish economic revolution which transformed Ireland from the basket case of Europe to a current per capita income higher than the UK.

By Carl Delfeld of the Chartwell ETF Advisor

Spain ETF Grows with Immigrants

The Spain ETF (EWP) has been growing along with the robust Spanish economy and immigrants have been part of the growth mix. Spain, with a population of 44.4m - has 4.6m immigrants. For many of the immigrants who have flooded into Spain in the past five years, the country holds the promise of a living that would take months or years to earn in their country of origin.

Victoria Burnett of the Financial Times writes that about one third of immigrants to Spain come from Latin America, eliminating the language barrier that in many societies proves an impediment to integration. The country's 370,000 or so Romanian immigrants quickly pick up Spanish, which is similar to their mother tongue.

A generally tolerant attitude combined with a long history of emigration has made Spaniards more open to newcomers. The Spanish economy has grown every year for the past decade and is expected to grow 3.7 per cent this year.

By Carl Delfeld of the Chartwell ETF Advisor

Germany ETF Up, Spain ETF Down?

By Carl Delfeld of the Chartwell ETF Advisor

A current Economist article points out that Germany has been the source of much of the recent good news in Europe. For so long a laggard in the euro area, its economy is now growing faster than the regional average. business confidence remains close to a 15-year high. Exports and business investment are doing well. No surprise that during the last 12 months, the German ETF (EWG) is up 31%.  

“The same cocktail of higher wages and sluggish productivity clouds the outlook for one of the fastest-growing European economies: Spain. In the last decade, its economy has expanded by an average of 3.7% a year, nearly twice the rate for the whole euro zone. Spanish demand has been driven by housing and credit booms that are vulnerable to higher interest rates. But high labour costs may in the end prove to be
Spain’s undoing.”

The Spain ETF (EWP) was a top performer in 2006 and is up 44% during the past year but up only 1.72% so far this year. In the same article, Olivier Blanchard, of the Massachusetts Institute of Technology, explains that Spain as a plausible next victim of what he calls “the rotating slumps under the euro”. In Mr. Blanchard’s model, the slump migrates across the currency zone according to shifts in relative wage costs. A long period of above-average wage growth that goes unmatched by productivity gains will eventually leave a country at a significant cost disadvantage.