Single-country exchange traded funds tracking the PIIGS economies are struggling this year and the Global X FTSE Portugal 20 ETF (NYSEArca: PGAL) is not immune to that trend. However, PGAL, the lone ETF dedicated to Portuguese stocks, skirted a potential problem last week.
“Ratings agency DBRS has kept its investment grade classification for Portuguese bonds, ensuring the debt-heavy eurozone country remains eligible for vital help from the European Central Bank’s stimulus program,” reports the Associated Press.
Last year, Portuguese equities retreated after the second-placed Socialist Party formed an alliance with the Communist Party and the radical Left Bloc to create a 122-seat majority, enough to out-vote the center-right coalition government, which held 107 seats after October elections, BBC reports.
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PGAL has also been hampered this year by struggling stocks in neighboring Spain. Recent momentum built up by Spanish stocks is seen as vulnerable to the country’s increasingly contentious political environment. Last year, Spain and its financial markets dealt with the issue of Catalonian independence as Catalonia makes up almost one-fifth of Spain’s gross domestic product and one-quarter of exports.
[related_stories]Some market observers believe that Europe’s recovery is still in its early stages and looks durable, pointing to the ongoing decline in the Eurozone’s unemployment rate, which is now at its lowest since 2011, and improvement in consumer confidence, which should buoy earnings growth.
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Most European market observers have been critical of European Central Bank President Mario Draghi’s stimulus measures. Specifically, many believe the measures have been too little too late, even after the ECB cut all three key rates this month and expanded quantitative easing.
Portugal’s credit rating is still rated junk by other major ratings agency, making the decision by DBRS to keep the country at the lowest investment-grade rating all the more important.
“Toronto-based DBRS was the only major agency that did not cut Portuguese bonds to junk status following a 78 billion-euro ($85 billion) bailout in 2011 that spared the country from bankruptcy. A eurozone country needs at least one investment-grade rating to qualify for ECB stimulus,” according to the AP.
Global X FTSE Portugal 20 ETF (NYSEArca: PGAL)
