The Global X FTSE Portugal 20 ETF (NYSEArca:PGAL) debuted Wednesday, marking the launch of the first ETF exclusively devoted to the “P” in the PIIGS acronym.
Despite solid returns by Lisbon-listed stocks this year and a mostly ebullient tone surrounding Eurozone equities, PGAL could face some immediate headwinds. [PIIGS Pen Complete With Portugal ETF]
On the day PGAL debuted, the International Monetary Fund cautioned that the Iberian nation still faces risks to its bailout plan “and that the country’s Constitutional Court could further complicate policy- making when it is called to scrutinize next year’s budget,” reports Axel Bugge for Reuters.
Portugal’s Constitutional Court has previously proved reticent in approving reforms aimed at bolstering the economy. The government there “nearly collapsed in July after the finance and foreign minister resigned over austerity measures introduced under the bailout, which sent Portugal into its worst downturn since the 1970s,” according to Reuters.
On a brighter note, Portugal is expected to run a government budget surplus of approximately 3.5% in 2014 after the European Central Bank’s aid program ends and the country is expected to have positive GDP next year, according to Global X. [Portugal ETF Goes Live]
Portugal is unlikely to issue debt before early next year, but the country is hoping to regain full market access by mid-2014.
Of interest to those considering a stake in PGAL is that government’s 2014 budget includes wage and pension reductions for public workers, important points when seeing that PGAL allocates nearly 23% of its weight to consumer services stocks.
Portuguese 10-year sovereign bonds closed at yield of 5.91% on Wednesday, down from the September peak of 7.42%, according to Bloomberg data. Those bonds yielded over 8.8% a year ago, but Wednesday’s close is still about 70 basis points higher than the May trough.
PGAL Sector Weights
Chart Courtesy: Global X