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Portuguese Investment Bonds: A Sign of New Opportunities?

September 22, 2017

Portugal’s drastic reduction in its debt in 2017 and best growth in decades has rallied its bonds. The S&P and the IMF reinstated investment-grade credit rating to a country whose bonds were previously in junk territory. Overall, the country’s export performance has improved, investment increased, and growth accelerated. The S&P’s upgraded rating to BBB- from BB+ stated an expected growth of more than 2% on average for the next 3 years.

Moody’s Investors Service and Fitch Ratings still value Portuguese bonds on par with junk level, but both agencies recently raised their outlook.  Bond indexes require investment-grade ratings from at least two of the three major credit rating agencies: S&P, Moody’s and Fitch.

Prime minister António Costa will undoubtedly serve as a face behind domestic and international center-left and socialist campaigns for the future. A Socialist-led government that managed to carry out budget consolidation and rose in popularity is rather unique. The question remains whether previous center-right government’s beneficial implementations such as major labor market reforms will remain in the public’s consideration.

Keith Knutsson of Integrale Advisors argued, “while Portugal has made tremendous progress, it still carries an incredibly high external debt position; the outstanding private debt is roughly 178% for companies and 103% for households, totaling to 280% of the country’s output.”

Overall, the country’s export performance has improved, investment increased, and growth accelerated – these developments have shifted the economy away from the dire situation that caused the €78bn international bailout program in 2011.

Investors should keep an eye on the Portuguese economy despite its historically unfavorable conditions. According to the OECD’s FDI Index, Portugal is the second-least restrictive regarding foreign investments within the EU; the legal system is non-discriminatory towards national origin of investment, and foreigners are able to invest in all sectors open to private enterprise.

 

This was initially published on my blog. See other articles here.

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