Goldman Sachs (NYSE: GS) late last week boldly upgraded the European financial sector stocks after the EU meeting cemented a fiscal pact. However, exchange traded funds tracking European financial stocks are leading the markets lower after rating agencies raised questions over Europe’s commitment.
Goldman on Friday upped its recommendation on European banks to “neutral” from “underweight” after the European Central Bank extended the maturity of its loans to banks and greater central bank intervention, according to Stock Market Today.
“While these concerns remain, the new refinancing measures adopted by the ECB and other central banks should help banks to significantly offset the pressure of the economic downturn, we believe,” according to a Goldman research note.
Investors hoping to bet on the optimistic outlook are getting burned so far. The iShares MSCI Europe Financials Index (NYSEArca: EUFN) is down about 8% so far this week.
On Monday, Fitch Ratings dismissed Europe’s new budgetary commitments, predicting that the region would see a “significant economic downturn” due to the debt crisis, which could go on “throughout 2012 and probably beyond,” reports Daniel Wagner for the Associated Press.
Moody’s Investor Service also stated that it will be reviewing the credit rating for every Eurozone member in the first quarter of 2012, noting that there were “few new measures” and the region is on the precipice of a “critical and volatile stage.”
iShares MSCI Europe Financials
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Max Chen contributed to this article.