Is Spain’s economy a parallel to the United States in 2010?



Southern Europe and US equities

When researching southern Europe as an investment opportunity, a useful story to compare recent performance to is US equities in 2009 and 2010. Although the US economy had not yet bottomed, stocks were soaring to historical returns. The thing to keep in mind is that equities trade based off future expectations and, since they have an indefinite life, expectations for not just the next year but multiple years into the future. It can be difficult to take such a long-term view on countries and companies, but that’s what investors must do to be successful in stock investing.

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The Spanish economy is by no means healthy, but investing only when countries are running at their best isn’t a good way to make money in stocks. For two examples, see the equity performance of Canada, which is in much better shape than Europe economically, and Australia, which hasn’t had a recession since the early 1990s.

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The only pure-play Spanish stock ETF is the iShares Spain ETF (EWP), although investors looking for more diversified EU exposure can get it from the iShares MSCI EAFE ETF (EFA) with a 3.4% allocation to Spain, the SPDR EUROSTOXX 50 ETF (FEZ) with 13%, the Vanguard MSCI Europe ETF (VGK) with 4.6%, and the iShares MSCI EMU ETF (EZU) with 11.3%.

Investing in developed market ETFs is a great way to diversify your portfolio outside of the US. When doing so, it can pay to ignore negative headlines and invest in countries that are likely to see significant recovery over the next decade.


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