I was putting together an ETF country analysis this morning
I found the Best Performing Countries this year -
And the Worst -
Spain is the worst performing country share index. No
I have been following the Spanish Stock Index, the IBEX35, and
the iShares MSCI Spanish ETF (EWP) the last few
months. At the moment, this index pays a whopping
12% annual dividend to it holders. These Spanish large cap
shares recently put in multi-year lows, about the time that the
Spanish 10-year bond rates peaked at 7.66% in Mid-July.
To my mind, that makes these Spanish large cap shares a Value
Second, I see a catalyst on the horizon.
Olli Rehn, Vice President of the European Commission in charge
of Economic and Monetary Affairs and the Euro, on Monday on CNBC,
was asked what to expect from Europe in the fall of 2012.
His answer? The European Banking Supervisor would be
approved and in place. That would allow cheap and liquid
funding to go from Europe's institutions directly to the Spanish
Inside Spanish iShares EWP, 50% of the index is made up of Banco
Santander SA (SAN at 21%), Telefonica (TEF at 17%), Banco Bilbao
Vizcaya Argentaria SA (BBVA at 10%), and other
companies like the oil and gas company Repsol (REPYY at 5%).
Here is the strategy. Buy Spanish shares, and if you
are wrong, you earn a 12% annual dividend. If the banking
catalyst does indeed come to pass, and the bottom is in on the
Spanish economy and its major stocks, then you earn the massive
dividend and see a nice high double-digit capital appreciation
Europe can't turn around without Spain turning around.
Political support in the European Central Bank and EU, in Germany,
and in Spain has to be there. Ditto for the IMF and the U.S.
Treasury and Fed. Direct lending to Spanish banks is the
'silver bullet', if there is one.
And if these Spanish shares are a buy, do I play it with the
broad index EWP? By buying the big banks who benefit from the
lending catalyst like SAN and BBVA? Or by buying a high dividend
paying defensive like TEF? Or sticking with something with
global market exposure like REPYY?
Or do I stay short, or stay away?
In other words, as a Value Investor, is this a trap, or is it
a screaming buy?
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