Gosh, so every single Spanish, Italian, Greek, Portuguese....(ad nauseum) male (and female) is actually grooming our children?
Well, who knew. (It doesn't sound "hippy dippy" btw, it sounds weird and paranoid and extremely offensive)
OP- here's a sensible answer. I do think, along with the sane members of the population, that these people think they're being nice. They like children. If they're pensioners, your dd probably reminds them of their granddaughter etc etc. It's a nice thing to do.
I'd distinguish between a person ruffling my dd's hair, speaking to her, and generally making a fuss, and someone who is "bear hugging" her. Maybe you or the other adult who is with her when the bear hugging occurs (because I'm guessing a 5 yr old isn't actually out on her own when this gratuitous fussing happens?) step in and say something. Is it always the same person doing the hugging? Or many?
The cheek pinching is very common in the Med, and actually, yes, it does hurt. It's what the oldies used to do to kind of say "oooh look at the fat on her, shows you have money and so can eat well" after the war. I've noticed over the last 20 yrs or so it doesn't happen quite so often.