No Va For Spain ETF If Moody's Downgrades Country's Banks

There are ETFs that have problems and then there are ETFs that have PROBLEMS. It's not unfair to lump the iShares MSCI Spain Index Fund EWP into the latter category. The fact that EWP is 10% year-to-date is almost an accomplishment given the negative headlines the “S” in PIIGS has involved with. Stretch things out a bit more and you'll find the only Spain-specific ETF is down more than 30% in the past two years. More pain could be on the way for the ETF on news Moody's Investors Service is mulling a downgrade of several major Spanish banks, citing their real estate exposure and diminished earnings capacity. Moody's is considering downgrades for the following Spanish banks: Banco Cooperativo, Banco Sabadell; Bankia and its holding company, Banco Financiero y de Ahorro (BFA); Bankinter, CaixaBank and its holding company, La Caixa; Confederacion Espanola de Cajas de Ahorro (CECA); Caja Rural de Granada; Ibercaja Banco; and Lico Leasing. Several of those firms can be found in EWP's lineup, which is heavy with financials at 41.3% of the ETF's weight. “This follows the rating agency's reassessment of the financial strength of all Spanish banks reflecting increased loss expectations with respect to their commercial real estate exposure,” Moody's said. Fortunately for EWP, Santander STD and Grupo BBVA BBVA weren't on Moody's hit list, at least not yet. On a technical basis, EWP is vulnerable and a move below $29.75 would prompt accelerated selling. Think that almost 6% yield is inviting? It's probably going to be higher rather quickly. Bad technicals, bad fundamentals and living everyday in the crosshairs of one of the worst sovereign debt situations ever makes EWP as unappealing as sharing tapas with someone with dirty hands.