Perhaps some investors aren’t taking ratings agencies so seriously anymore after the credit meltdown.
An exchange traded fund that invests in Italy has barely blinked after Moody’s on Friday threatened to downgrade the country’s credit rating. The iShares MSCI Italy (NYSEArca: EWI) was up nearly 7% for the year through the end of last week.
Moody’s singled out Italy while Greece’s debt crisis continues to dominate the headlines even with the Federal Reserve meeting this week.
On Friday, Moody’s ratings firm threatened to downgrade Italy’s Aa2 credit ratings in the next 90 days if interest rate hikes in the eurozone prove to impede Italy’s economic recovery, report Daniel Bases and Walter Brandimarte for Reuters. Moody’s has stated that it is closing watching eurozone financial debt problem for any “important determinants” in its next ratings review.
The European Central Bank could raise rates in July.
The ratings firm specifically pointed out Italy’s structural weaknesses, such as low productivity and “labor and product market rigidities,” and the firm also voiced its concerns over funding conditions of countries with elevated debt levels. Italy holds one of the largest public debt burdens in the world, amounting to around 120% of GDP. The country’s slow economic growth has made it difficult to reduce the government’s debt levels.
“Italy has had structural impediments to growth for some time,” said Moody’s analyst Alexander Kockerbeck. “However, today, these challenges coexist with a scenario of rising interest rates and fragile market sentiment.”
“The Moody’s news on Italy reinforces the ECB’s concern about the prospect of contagion,” remarked Greg Salvaggio, senior vice president at Tempus Consulting, according to the Reuters report.
Standard & Poor’s holds Italy’s sovereign debt rating at A+, or two levels below Moody’s, with a pessimistic outlook. Fitch’s ratings holds Italy between S&P and Moody’s at AA-, with a stable outlook.
iShares MSCI Italy (NYSEArca: EWI)
Max Chen contributed to this article.