Carles Puigdemont has no intention of backing down. The leader of the Catalonia’s secession movement fled to Brussels this week where he voiced support for Spanish regional elections to be held on December 21.
That move, despite the recent high-stakes showdown against the central government in Madrid, likely signals an “all clear” for investors. Those planned elections are far less likely to produce a “yes to secession” vote than recent events may suggest.
As a result, Spanish ETFs, which may have suddenly seemed to become too risky to own, are once again a wise tactical holding in portfolios.
For sure, Catalonian anger remains profound. The region continues to feel short-changed as it sends an estimated annual $12 billion more back to the Central government than it receives. Spanish newspaper El Pais notes that Catalonia represents 16 percent of the nation’s population but 20 percent of its GDP. That’s an even greater role than California plays in the U.S. economy.
But voters seem more keen to revisit a pact in 2006 that yielded greater regional autonomy, key elements of which were struck down in a 2010 court ruling. Indeed, more than 80 percent of Catalonians have said in polls that they would like to have the right to secede, but less than half say they would actually vote to do so, according to El Pais.
And between now and December 21, that figure may slip further as Catalonians come to understand the true impact of secession. For starters, leaders in the top European nations have come out in defense of Madrid, which would suggest that Catalonia would not be welcome as a standalone entrant into the EU.
And the breakaway region would likely lose a considerable chunk of its export market, as 35.5 percent of Catalan exports currently flow to the rest of Spain, which has threatened boycotts in the event of secession. As Pablo Beramendi, a political scientist at Duke University recently told the Council on Foreign Relations, “an autarkic Catalonia would be to no one’s benefit, Madrid included.” (To save you from reaching for the dictionary, “autarky” means national economic self-sufficiency and independence.)
While it’s important to stay tuned to the events in Spain as they play out, know that the Spanish economy has emerged as one of the clear success stories of a resurgent Europe. It has been growing at a 3.1 percent clip in each of the past two quarters, and now looks better positioned in the global economy.
For example, the debt-driven construction sector no longer powers the economy, and is half the size it was a decade ago. Meanwhile, exports now account for one-third of the economy, up from 25 percent a decade ago.
That economic rebound has helped the iShares MSCI Spain Capped ETF (EWP) rise nearly 29 percent this year, after a prior three-year slide. Don’t think you’ve missed the boat. This ETF still trades at a roughly 50 percent discount to its 2007 peak.