No Podemos in Portugal Hands Investors Best Returns

Portugal has mostly avoided the political turmoil in Greece and Spain even as the countries paid for aid with austerity that helped send unemployment soaring.

Whereas anti-austerity parties Podemos in Spain and Greece’s Syriza lead in polls as they tap into voter discontent, Portugal’s ruling Social Democrats and the Socialists, the main opposition party, garner more than 60 percent support in surveys. Their appeal endures as joblessness declines and as the nation exited its three-year bailout program from the European Union and the International Monetary Fund in May.

“You can see an enormous difference in the reaction to austerity that there was in Portugal compared with the reactions in Greece or Spain,” said Diogo Teixeira, chief executive officer of Optimize Investment Partners, a Lisbon-based firm that manages 95 million euros ($118 million) in assets including Portuguese government debt. “I believe in Portugal’s resilience. For a debt investor, that’s a good thing to see.”

The nation’s 10-year bond yield has declined to 3 percent from more than 18 percent in January 2012 as the economy emerged from recession last year. Portuguese debt has returned about 20 percent in 2014, the most among euro-region securities tracked by Bloomberg bond indexes.

2015 Elections

While the government has already raised funding for more than half of its financing needs next year, when elections are scheduled to take place, the bonds remain below investment grade at Fitch Ratings, Moody’s Investors Service and Standard & Poor’s. The scale of the damage brought by the euro-zone debt crisis has left Portugal’s economy about 5 percent smaller than it was in 2010, according to the country’s statistics institute.

Portugal’s Socialists lead the Social Democrats of Prime Minister Pedro Passos Coelho with 36.9 percent support in a survey of voters’ intentions, weekly newspaper Expresso reported on Nov. 14. The poll indicated 25.3 percent backing from voters for Coelho’s party, with 7.7 percent support for the conservative CDS party, which is part of the ruling coalition.

“There has been no collapse of the Portuguese party system,” said Antonio Costa Pinto, a professor of political science at the University of Lisbon.

The Expresso survey also indicated 10.4 percent support for a coalition of the Communists and Greens, and 3.6 percent for the Left Bloc.

Podemos, Syriza

“The Left Bloc wasn’t able to capitalize on the crisis situation and the austerity program in Portugal,” said Costa Pinto, who called the Left Bloc close to the “radical left,” comparable to Syriza. “In the Portuguese case there is a strong Communist Party with a link to the union movement. The left is more fragmented than the right.”

Spain’s Podemos, which was formed in the past year and is led by Pablo Iglesias, commands 18 percent support among voters, more than the ruling People’s Party and the main opposition group, the Socialists, according to a state-run poll released this month. The nation is also due to hold national elections next year. Like Syriza in Greece, Podemos gained momentum by opposing social-spending cuts.

The rise of Syriza, led by Alexis Tsipras, has presented a growing risk to Greek Prime Minister Antonis Samaras, who heads the New Democracy party and governs in a coalition with the Socialist Pasok.

‘Magical Solutions’

Ten-year Greek yields fell as low as 5.52 percent this year from 8.42 percent at the end of 2013. Spain’s 10-year rate was at 2.01 percent on Nov. 21, compared with 4.15 percent at the end of last year.

In Portugal, “if the situation would have led the Socialist Party to join the government in a coalition, it’s probable that it would have suffered a similar erosion as the Socialists in Greece,” Costa Pinto said.

Coelho formed the majority coalition with the CDS party after June 2011 elections, taking over from the Socialist minority government led by Jose Socrates, which requested the nation’s bailout in April 2011. The Socialists have voted with the ruling coalition on some key policy decisions, including the European Stability Mechanism treaty.

“The political parties correspond to the reality of the Portuguese people, who prefer to face challenges in a pragmatic way rather than believe that magical solutions are possible,” Optimize’s Teixeira said.

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