Kissing PIIGS... S&P Downgrades Spain (SNF, EWP, BBVA, STD, REP, TEF)

Standard & Poor’s just hit the brakes on the markets, a day after cutting Greece and Portugal.  The PIIGS are taking another toll, with the cut today being the long-term rating of the Sovereign Kingdom of Spain.  S&P’s cut its rating to “AA” from “AA+”and the “A-1+” short-term sovereign credit rating was affirmed. The outlook is negative.  S&P’s transfer and convertibility assessment is unchanged at ‘AAA’

We are seeing moves in the main stocks and funds which track Spain: The Ibero-America Fund, Inc. (NYSE: SNF), iShares MSCI Spain Index (NYSE: EWP), Banco Bilbao Viscaya Argentaria (NYSE: BBVA), Banco Santander, S.A. (NYSE: STD), Repsol YPF SA (NYSE: REP), and Telefonica SA (NYSE: TEF).

S&P notes, “Spain is likely to have an extended period of subdued economic growth, which weakens its budgetary position…”

The negative outlook reflects the possibility of a downgrade if the nation’s budgetary position underperforms more than is currently expected.  The move away from a credit fueled economy will now result in longer-term growth from 2010 to 2016 is what S&P thinks will now be about 0.7% rather than 1.0% previously expected; and S&P expects that the nominal GDP will regain the 2008 level by 2015 rather than 2013 previously forecast.

S&P also sees private sector debt at 178% of GDP, above many of Spain’s peers.  Also noted is an inflexible labor market, where unemployment is expected to reach 21% in 2010.

You know the rest.  High debt, lower GDP, deleveraging, and on and on…

JON OGG