Spain Short Selling Ban Spreads Through PIIGS and Beyond (EWP, SAN, BBVA, GREK, NBG, PT, IRE)

Most, or much, of the world hates short sellers. Betting against markets is just unfair, or so goes the logic. There is just one small problem: a market without short sellers is not an efficient market. Short selling has its place in the universe by adding liquidity, even if it is hated by many.

So, what happens when nations try to ban short selling? All we have to do is ask Spain, which today has passed a short selling ban for three months. Spain has now reported a 1% drop in gross domestic products, but it seems fair to ask if that 1% should be “only 1%,” if you just looked at the headlines. Unlike other European short selling bans, where the ban only applied to the troubled banks and financial companies, this ban pertains to ALL public companies.

The iShares MSCI Spain Index (NYSEMKT: EWP) is down 3% at $20.47, against a prior 52-week range of $20.98 to $40.34. The Spanish 10-year yield also is up 25 basis points at 7.43% on last look. Banco Santander, S.A. (NYSE: SAN) hit a new 52-week and multiyear low after a 1.6% drop to $5.03, compared a prior 52-week range of $5.10 to $11.06. Banco Bilbao Vizcaya Argentaria, S.A. (NYSE: BBVA) is down 2.5% at $5.48, and the prior 52-week range was $5.57 to $10.84.

To make matters worse, Greece is reportedly back in the spotlight on reports that the International Monetary Fund likely will halt payments, and that could bring up default risks all over again. Global X FTSE Greece 20 ETF (NYSEMKT: GREK) is down 9.5% at $10.57 and National Bank of Greece SA (NYSE: NBG) is down 8.5% at $1.40.

In Portugal, the ADRs of Portugal Telecom, SGPS S.A. (NYSE: PT) are down 3.3% at $4.13 in New York trading. Even the Irish are suffering with Europe and the PIIGS: Bank of Ireland (NYSE: IRE) is down 2.1% at $5.01.

JON C. OGG