Portugal’s markets and country-specific exchange traded fund plunged Monday on political uncertainty after leftist groups formed a coalition to oust the center-right government and potentially disrupt recovery measures.
The Global X FTSE Portugal 20 ETF (PGAL) fell 3.6% Monday, dipping below its short-term 50-day simple moving average.
Portugal’s PSI 20 Index closed 4.4% lower to 5273.3 Monday.
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.
“The scenario of a left-wing government and the ousting of the center-right is about to become reality, which the markets obviously don’t like,” Joao Lampreia, an analyst at Banco BiG, told BBC.
The markets fear that the combined leftist parties could endanger a tepid economic recovery and remove austerity reforms imposed to escape a debt crisis – Portugal accepted a 78 billion euros, or $84 billion, bailout in 2011.
“The program of the leftist coalition is clearly less market-friendly than the one of the incumbent government,” Marco Brancolini, a rates analyst at RBS, told Reuters, citing pledges to hike wages, re-instate bank holidays and cut tax for low earners.
Specifically, the leftist parties want to give back government workers their pay that was cut, unblock pension increases, spend more on the national health service, provide free nursery schools for all 3-year-olds, give free book for all, reduce sales tax at restaurants from 23% to 13% and restore four public holidays, reports Barry Hatton for the Associated Press.
A vote on the government’s program will likely take place Tuesday.
Additionally, Portugal’s only investment-grade credit rating will be scrutinized Friday by credit agency DBRS.
Rainer Guntermann at Commerzbank, warned “rating jitters are also on the rise for Portugal.” If Portugal’s debt is downgraded, the country may be barred from the European Central Bank’s quantitative easing program.
Global X FTSE Portugal 20 ETF
For more information on the Portuguese market, visit our Portugal category.
Max Chen contributed to this article.