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Spain ETFs
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About Spain ETFs |
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Spain ETFs Overview and forecast
As with all the national ishares ETFs, the Spanish representative of the family, iShares MSCI Spain Index Fund, (AMEX:EWP) has its own individual dynamic. At first glance, this looks like a pretty conservative investment pattern, where high prices attract investors, but the lower prices produce relatively flat trading volumes. A bit of digging among the charts, however will expose the fact that this was actually atypical behavior.
EWP had a flurry of very high volume trading during its historical peak prices, from the third quarter of 2006 to May 2008. during the crash, trading volumes returned to something like normal, or slightly above, normal volumes. Interestingly, though, this ETF seems to manage good price moves better in the lower volume trading periods.
That indicates a healthy trading market, and EWP has managed to move from just below $25 to $40 in the second quarter of 2009, on quite demure trading volumes. Small investors would be very happy with this result. A 45% return on the lows in that period is no minor accomplishment. The buying pattern doesn't indicate much institutional activity, but fund managers are unlikely to overlook the combination of a historically low price and a performance like that.
Short term (6 months)
The obvious inference here is that if the trading patterns aren't dramatic in terms of volumes, this is a slow sellers' market, in practice. Low volumes and steep price increases look like there is some definite margin- based selling being done, and a short supply of sellers will add some upside.
Ishares have done their usual, reliable, form of European weighting, with two heavyweights dictating the returns base, underpinning and covering the lower weightings in the holdings. That's been working very well in the second quarter of 2009, and it doesn't look like EWP has any weak spots in its mix. It's reasonable to think that the Spanish ETF market is likely to become more active in a recovery, and improving capital markets will add some strength to trading margins, with a limited upside.
Medium term (2 years)
The Spanish market has shown the ability to support larger volumes of trade at considerably higher prices, and there will be incentives for competition for that capital volume. The current situation of a single ETF is likely to be changed in the medium term by the entrance of DAX based ETFs, which are apparently setting up in the European markets. That will help attract investment, and boost capital and trading volumes.
However, the Spanish economy isn't necessarily everyone's idea of an investment market, and the local stocks have a limited level of appeal to international investors, except in the European spread scenario. That may slow down the development and increase in capital investment compared to the bigger European markets. Again, limited upside, with a caveat on investment levels as the defining factor.
Long term (5 years)
It's inevitable that Spain, like the other European markets, will grow in terms of both capital and investment diversity. The Spanish market is a bit underdeveloped in terms of the more advanced trading modes, but it's likely to see a rapid remediation of that situation. That's partly due to the need for capital, and partly due to natural evolution.
Spain will definitely move ahead as fast as it can in this process, and being part of the EU will be an additional boost to its capital market problems. The Spanish ETF market in the long term is very likely to develop along the obvious lines of demand. The long term upside is likely to be comparatively broad, and relatively strong, as the local economy adapts to the new modes of investment.
Qualifiers to projections
The Spanish economy is undercapitalized. The major reservation about the Spanish investment market is that any real growth has to be on a realistic basis, with sustainability as the primary objective. This is a big local economy, and getting things off the ground can take time, patience, and above all, money which the Spanish economy needs.
There are better alternatives to raising capital than waiting for the credit markets to reincarnate themselves. Spain has produced a modern market economy quite rapidly after the Franco era, and if the economy is still reinventing itself to some extent it's quite understandable. The emerging investment markets may be Spain's ticket out of that situation. It's obvious that investment will have to be targeted and bringing in decent amounts of capital.
That in turn will boost investment. Spain is likely to develop a pragmatic approach to these issues, and one of Europe's oldest nations may find itself an emerging market attracting a lot of interest, if it plays its cards well. This is pure economics, but the odds are heavily in favor of Spain picking up the opportunities these new markets represent. The Spanish ETF market could get very interesting to global investors if the environment is favorable.
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Last Updated on: 2010-01-14 02:03:40 |
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