Friday Surprise: Greece and Spain Get Credit Ratings Upgrades

Fitch Ratings raised Greece’s long-term foreign and local currency Issuer Default Ratings (IDR) to B from B-. Also of note, the Outlooks are Stable. Greece’s senior unsecured foreign and local currency bonds have also been raised to B from B-. The Country Ceiling has been raised to BB from B+, and the short-term foreign currency IDR has been affirmed at B.

Fitch said that Greece achieved a primary surplus in the general government account in 2013, which was listed as a key target of the EU-IMF program and an overperformance relative to budget. Taking into account the cost of bank recapitalization, the headline deficit was 12.7% of gross domestic product (GDP) and Fitch is now forecasting that Greece’s adjusted primary surplus will rise further in 2014 to 1.4% of GDP.

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On Spain, Standard & Poor’s raised its sovereign rating BBB from BBB- and the Outlook is Stable. S&P is increasing Spain’s growth forecasts. What should stand out is that this is first upgrade of Spain since S&P stripped Spain of its AAA rating in 2009. What is important here is that Spain was one notch above junk, and this upgrade reverses a trend. It could make Spain’s borrowing costs cheaper. Both Fitch and Moody’s had raised Spain earlier in 2014.

There are exchange traded funds for both plays. The Global X FTSE Greece 20 ETF (NYSEMKT: GREK) is at $21.33, against a 52-week range of $14.11 to $25.76. The volume has picked up of late in the Greek ETF. Similarly, we have seen recent credit and analyst upgrades for National Bank of Greece S.A. (NYSE: NBG), but its ADSs in New York remain lackluster. Trading at $3.12, its adjusted 52-week trading range is $2.85 to $12.50. For Spain, there is the iShares MSCI Spain Capped (NYSEMKT: EWP) ETF. It trades at $41.67, and its 52-week range is $27.50 to $42.58.

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