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PIIGS KILLERS: Italy PM Vote Threatens Austerity, All Over Again

Jon C. Ogg — Mon, 25 Feb 2013 20:00:29 +0000

What happens when you put a vote out to the people about whether or not their benefits and public spending should be cut to appeal to international creditors? If you believe in game theory, chances are high that the public will vote against it. The prime minister vote in Italy has taken a turn for the worst and it is dragging down Italian ADRs as a result. It gets worse. This is also hitting the US market, but we also fear that if the vote in Italy does really go against austerity then you have an entire wave of more anti-austerity issues coming from Greece, Portugal, Spain, and elsewhere.

Italian post-election polls are indicating that Italy will have a hung parliament. Reports have former Italian Premier Silvio Berlusconi gaining ground, while earlier readings had Pier Luigi Bersani’s center-left coalition in the lead. The problem is that Italy has to stick to its already-enacted and planned austerity measures and a hung parliament that could sway either way after the results are known could jeopardize that.

Investors and the public probably know it by now, but the real issues is that Italy is too damned big to bail out. We featured this and the statistics behind this on Friday ahead of the elections. There just isn’t enough money to throw into Italy to bail it out. We knew most Americans would not care because they had things the weekend and the Academy Awards to worry about after a long week. Italy matters all over again. Here is how things look in New York ADR and ETF trading:

iShares MSCI Italy Capped Index (NYSEMKT: EWI) is down 4.8% at $12.32
Eni SpA (NYSE: E) fell by over 3% to $44.91
Luxottica Group SpA (NYSE: LUX) is down by 2% at $44.76
Telecom Italia S.p.A. (NYSE: TI) is down 3.2% at $7.55

Elsewhere in the PIIGS:

Greece – National Bank of Greece SA (NYSE: NBG) is down 5.9% at $1.27; Global X FTSE Greece 20 ETF (NYSEMKT: GREK) is down 6.7% at $17.80.

Portugal – Portugal Telecom, SGPS S.A. (NYSE: PT) is down 2.7% at $5.12.

Spain – Telefonica (NYSE: TEF) is down 1.9% at $12.57; iShares MSCI Spain Capped Index (NYSEMKT: EWP) is down 4% at $29.20; Banco Santander, S.A. (NYSE: SAN) is down 4.6% at $7.41; Banco Bilbao Vizcaya Argentaria, S.A. (NYSE: BBVA) is down 6% at $9.50.

Ireland – The Bank of Ireland (NYSE: IRE) is down 1.3% at $8.06; iShares MSCI Ireland Capped Investable Market Index (NYSEMKT: EIRL) is down 2% at $26.31; and The New Ireland Fund, Inc. (NYSE: IRL) is down 1.5% at $9.82.

The trend these days is to vote against austerity measures. That even applies to a promise to end certain austerity measures that have already started. Maybe Italy will catch on and do what is so popular to do now: look up at the wealthy and try to make them pay more.

Italy matters again and it is very possible that if things start to get tangled up in Italy based upon this election that the spillover is going to lead to a domino-effect where other PIIGS and troubled European nations lose the stability that had been forming in the last 3 or 4 months.

Filed under: 24/7 Wall St. Wire, ETFs & Mutual Funds, International Markets Tagged: BBVA, E, EIRL, EWI, EWP, GREK, IRE, IRL, LUX, NBG, PT, SAN, TEF, TI

PIIGS Rating Twist: Unusual Upgrade For Ireland

Jon C. Ogg — Wed, 14 Nov 2012 18:08:10 +0000

Usually all you see is a ratings downgrade and an affirmed “negative outlook” when it comes to the sovereign credit ratings of Portugal, Italy, Ireland, Greece, and Spain. That is not the case today. Fitch ratings has revised its ratings on Ireland to Stable from Negative. While a technical upgrade would be the lifting of a formal rating, simply removing the Negative outlook in favor of a Stable outlook is something which should be worth noting.

Fitch said, “At the same time, the agency has affirmed the Long-Term foreign and local currency Issuer Default Ratings (IDRs) at ‘BBB+’. Ireland’s Country Ceiling has been affirmed at ‘AAA’ and Short-term foreign currency IDR at ‘F2′. The ratings of guaranteed issuance by National Asset Management Ltd (NAMA) have also been affirmed at ‘BBB+’ and ‘F2′, in line with the sovereign ratings.”

Today’s news is said to reflect Ireland’s “continued progress with its fiscal consolidation, external adjustment and economic recovery, as well as the sovereign’s improved financing options. Fitch judges that the risks surrounding the adjustment path have narrowed and become more balanced.”

Ireland has so far met its quarterly fiscal targets and the nation’s policy has successfully managed to meet the fiscal targets without excessive adverse impact on economic growth even if more adjustments are needed to bring the deficit below 3% by 2015. The flat or no growth expected this year is also still better than that of the Euro zone and is far better than the peripheral nations in the Euro. Fitch even pointed out that Ireland has been able to return to the capital markets and has had to pay lower yields.

The full Fitch report is here.

We have not seen any improvement in Irish related plays in New York. The Bank of Ireland (NYSE: IRE) ADRs are trading down 0.3% at $5.27 and The New Ireland Fund, Inc. (NYSE: IRL) is down almost 2% at $8.45 today. In the world of ETFs, the iShares MSCI Ireland Capped Investable Market Index (NYSEMKT: EIRL) is trading down by 1.3% at $21.95.

JON C. OGG

Filed under: 24/7 Wall St. Wire, Analyst Calls, Banking & Finance, Economy, International Markets Tagged: EIRL, IRE, IRL

Fitch Joins E.U. Downgrade Waves (EWK, IRE, EIRL, IRL, EWI, TI, EWP, STD)

Jon C. Ogg — Fri, 27 Jan 2012 18:30:03 +0000

Fitch has joined in on the European sovereign credit rating downgrades. First it was S&P, but we might argue that this should have mostly been factored in already. Is it a secret that the economies in Europe have been slowing and have more exposure these days? Fitch is cutting six Eurozone sovereign ratings (on Rating Watch Negative since 16 December 2011) as follows (with ETFs and major ADRs indicated):

Belgium LT IDR downgraded to ‘AA’ from ‘AA+’; Negative Outlook; ST IDR affirmed at ‘F1+’: iShares MSCI Belgium Index Fund (NYSE: EWK) is still up 0.4% at $11.33; 52-week range $10.23 to $15.65.

Ireland LT IDR affirmed at ‘BBB+’; Negative Outlook; ST IDR affirmed at ‘F2′: Bank of Ireland (NYSE: IRE) down 1.6% at $6.15; 52-week range of $3.99 to $27.00 (adjusted for reverse split). MSCI Ireland Capped Investable (NYSE: EIRL) is down 1.5% at $20.17; 52-week range is $16.78 to $23.80. The Irish Investment Fund, Inc. (NYSE: IRL) is still up almost 1% at $7.22 and its 52-week range is $6.49 to $8.77.

Italy LT IDR downgraded to ‘A-’ from ‘A+’; Negative Outlook; ST IDR downgraded to ‘F2′ from ‘F1′: iShares MSCI Italy Index Fund (NYSE: EWI) is down 0.8% at $12.92; 52-week range is $10.88 to $20.15. Telecom Italia S.P.A. (NYSE: TI) is flat at $10.33 an dthe 52-week range is $9.74 to $16.04.

Spain LT IDR downgraded ‘A’ from ‘AA-’; Negative Outlook; ST IDR downgraded to ‘F1′ from ‘F1+’: iShares MSCI Spain Index Fund (NYSE: EWP) is still up 0.4% at $31.44 against a 52-week range of $28.53 to $45.99. Banco Santander, S.A. (NYSE: STD) is still up 0.7% at $8.16 against a 52-week range of $6.77 to $12.72.

Two more downgrades were issued:

Cyprus LT IDR downgraded to ‘BBB-’ from ‘BBB’; Negative Outlook; ST IDR affirmed at ‘F3′
Slovenia LT IDR downgraded to ‘A’ from ‘AA-’; Negative Outlook; ST IDR downgraded to ‘F1′ from ‘F1+’

Should this have really been a surprise? If so, these would be performing far worse.

JON C. OGG

Filed under: 24/7 Wall St. Wire, ADR, Economy, Emerging Markets, ETF, ETFs & Mutual Funds, International Markets, Mutual Funds Tagged: EIRL, EWI, EWK, EWP, IRE, IRL, STD, TI