On Tuesday, Standard and Poor’s cut Greece’s debt rating to “junk.” Unfortunately, that wasn’t the end of it. The credit rating agency also smacked Portugal for a two-notch downgrade.
Indeed, it seems the “PIIGS” acronym has legs. Portugal, Ireland, Italy, Greece and Spain are all in the cross-hairs of debt-conscious investors worldwide.
Granted, all stock assets reacted violently to the news of the day. Yet I found myself checking to see which ETFs absorbed selling pressure versus those that experienced outright animosity.
|ETF Reaction To Sovereign Debt Downgrades|
|Approx % Loss (4/27)|
|iShares MSCI Malaysia (EWM)||-1.6%|
|iShares MSCI Japan (EWJ)||-1.9%|
|S&P 500 SPDR Trust (SPY)||-2.3%|
|SPDR Emerging Asia (GMF)||-2.8%|
|iShares Emerging Markets (EEM)||-3.5%|
|SPDR Emerging Europe (GUR)||-4.4%|
|Vanguard Europe (VGK)||-4.9%|
|iShares Eurozone EMU (EZU)||-5.2%|
|iShares MSCI Italy (EWI)||-5.6%|
|iShares MSCI Spain (EWP)||-6.2%|
Regionally speaking, investors didn’t want to be anywhere near the eurozone. In fact, the investment community punished shareholders of iShares European Monetary Union (EZU) with a loss in excess of 5%.
To put this into perspective, the EU is comprised of developed nations with developed equity markets, not unlike the U.S. market. And while one has traditionally come to expect 1.5x the beta, or volatility, of U.S stocks in the S&P 500, yesterday’s downside activity for Vanguard Europe (VGK) and iShares MSCI European Union (EZU) was closer to 2x and 2.5x as harsh.
Still, one cannot disparage equities of the debtor nations indiscriminately. Perceived recovery strength, currency safe-harboring and raw economic power helped spare the SPDR S&P 500 (SPY) and iShares Japan (EWJ) from a fate worse than that of the eurozone.
Disclosure Statement: Gary Gordon, MS, CFP is the president of Pacific Park Financial, Inc., a Registered Investment Adviser with the SEC. The company and/or its clients may hold positions in the ETFs, mutual funds and/or index funds mentioned above. The company receives advertising compensation at the ETF Expert web site from Invesco PowerShares Capital Management, LLC. The commentary does not constitute individualized investment advice. The opinions offered herein are not personalized recommendations to buy, sell or hold securities.