MW: Banks lead Europe stocks lower on debt worries
Portugal’s credit rating knocked to junk status; China hikes rates
By Barbara Kollmeyer, MarketWatch
MADRID (MarketWatch) — European stocks declined Wednesday, with banks falling most heavily, notably in Portugal in the wake of a four-notch downgrade of the country’s credit rating to below investment grade.
China’s central bank raised interest rates by 0.25 of a percentage point, also unsettling investors.
The pan-European Stoxx 600 index XX:SXXP -0.30% fell 0.3% to end at 274.79, snapping a seven-session winning streak.
Portuguese and Italian banks posted particularly steep losses on news that late Tuesday Moody’s Investors Service downgraded Portugal’s credit rating. The agency cited growing risk that Portugal may need more official financing amid a growing likelihood it won’t be able to get access to capital markets in the second half of 2013 and for some time afterward.
Portugal’s PSI 20 index sank 3% to end at 7,126.29, with heavy losses for financial shares. Banco Comercial Portugues SA PT:MBC -6.85% fell 6.9%, Banco BPI SA PT:BPI -5.95% dropped 6%, and Banco Espirito Santo SA PT:BES -5.68% shed nearly 6%.
In Italy, the FTSE MIB stock index declined 2.4% to 19,783.21. Shares of UniCredit SpA IT:UCG -7.06% sank 7.1% and those of UBI Banca IT:UBI -6.59% dropped 6.6%.
The downgrade by Moody’s “has huge implications not only for the existing debt, but for Portugal’s ability to access future financing,” said Duarte Caldas, analyst with IG Markets in Lisbon, who expects other ratings agencies will follow.
On Monday, Standard & Poor’s Ratings Services said proposals by French banks to roll over some of their Greek debt would put the country in “selective default.”
Spain’s IBEX 35 index XX:IBEX -1.22% closed down 1.2% at 10,204.50. Banks including BBVA SA ES:BBVA -2.51% BBVA -3.61% , Banco Santander SA STD -2.85% ES:SAN -2.12% and Banco Popular Espanol SA ES:POP -2.45% own Portuguese banks and hold part of the country’s sovereign debt.
Shares of Banco Santander SA STD -2.85% ES:SAN -2.12% fell 2.1% and those of BBVA slumped 2.5%. Shares of Banco Popular slipped 2.5%.
Stepping to the sidelines
Caldas said he would stay out of stock markets especially for July and August: “There’s no need for you to be invested with all the risks there are. We’re not only talking about Greek debt, but the European periphery situation and purchasing managers indexes have also hit minimums.”
Other observers say the markets have likely taken into account the bulk of sovereign-debt issues.
“Problems in Greece, Portugal and Ireland are further to be expected and therefore priced into markets, in my view,” said Christoph Riniker of Bank Julius Baer & Co. “Problems would arise with a contagion to Spain and Italy, which we currently do not expect.”
