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Spain ETF Looks Ripe for More Upside

This article was originally published on ETFTrends.com.

The iShares MSCI Spain Capped ETF (EWP) , the largest ETF tracking stocks in the Eurozone’s fourth-largest economy, was one of last year's best-performing single-country Europe ETFs. This year, EWP is modestly higher, but the stage is set for the Spain ETF to generate more upside for investors.

Ebbing political volatility in Spain and some major improvements to local economic data are helping drive stocks there higher. Additionally, the bank-heavy EWP could benefit as Spain’s banks are viewed more favorably by global investors.

“Spain’s sovereign rating was raised one notch to Baa1 by Moody’s Investors Service, with a stable outlook, completing a full rating upgrade by all the main credit services,” reports Bloomberg. “The Spanish economy has entered its fifth year of expansion, showing a resilience to external shocks and political turbulence. The momentum has prompted the three major credit agencies to improve their rating in recent months, reflecting the change in fortunes for the kingdom.”

Related: A Eurozone Focused ETF With Promising Potential

Why Spain Is Poised With Potential

The $1.05 billion EWP tracks the MSCI Spain 25/50 and holds 23 stocks. Like many single-country ETFs, EWP is top heavy at the sector with financial services names accounting for 42% of the ETF’s weight. That is more than double the fund’s exposure to its second-largest sector weight, industrials.

Just two stocks – Banco Santander (SAN) and Banco Bilbao Vizcaya (BBVA) – combine for nearly 30% of the ETF’s roster.

"Recent years have seen gradual, but increasingly sustainable, improvements to Spain’s credit profile. Much has been done to address the weaknesses in the banking sector that emerged during the financial crisis. It has also become increasingly clear that structural changes in the economy have changed the growth model to one that is broader-based and more sustainable than in past recoveries,” Moody’s said in a statement.

Related: Why We Like Europe, Particularly the Eurozone

Spain experienced a double-dip recession following the global financial crisis, but since the end of the second recession, the Spanish economy has been growing at an impressive clip.

“Since then, the economy has grown for 18 consecutive quarters and reduced its budget deficit after running one the largest shortfalls in the European Union,” according to Bloomberg.

For more information on European markets, visit our Europe category.