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Portugal: The ‘market of the year’?

Friday, 17 Jan 2014 | 6:11 AM ET
Portugal will be 'the market of the year': Pro
Friday, 17 Jan 2014 | 3:15 AM ET
Chris Zwermann, global strategist at Zwermann Financial, says with an improving economy and the long-term interest rates going down, Portugal will be the "market of the year" to invest in.

Portugal could be the "market of the year" to invest in, according to a strategist, as ratings agency Standard & Poor's (S&P) removed it from its downgrade danger list.

S&P retained Portugal's BB credit rating and removed it from the Creditwatch list, reserved for those countries being reviewed for an imminent downgrade.

But the country still remains two notches below investment grade.

Despite this, Chris Zwermann, global strategist at Zwermann Financial, told CNBC that the Portuguese stock market could see a 15 percent rally.

(Read more: Portugal 'confident' on May bailout exit)

"It's the market of the year because long term interest rates (are) going down because the situation is improving. On the technical (side), we see a very good chance of (the stock market) going around 15 percent higher from here," he said.

Last year, Portugal's PSI 20 saw a 15.5 percent rally.

Country on the up

Portugal was forced to ask for help from the International Monetary Fund and its fellow euro members when it struggled to borrow in the international bond markets. Investors pushed its borrowing costs above 7 percent, a level widely regarded as unsustainable, amid concerns over its high levels of debt.

Mario Proenca | Bloomberg | Getty Images

But investor sentiment for Portugal is improving. The country, which is hoping to leave its 78 billion euro bailout program later this year, launched a five-year bond last week. On Wednesday, the country's borrowing costs fell to their lowest since the start of Europe's sovereign debt crisis in 2009 as investors eye up euro zone peripheral bonds.

(Read more: US's Lew flies to Portugal as periphery parties)

The Portugeuese secretary of state for European Affairs told CNBC on Wednesday that the country is "confident" that it can exit its bailout program in May.

S&P also expected Portugal to meet it fiscal deficit target of 5.5 percent of GDP in 2013 as the economy stabilizes.

Challenges remain

But the euro zone country still faces tough challenges. The Portuguese central bank estimates non-financial private-sector debt at 284 percent of GDP in September 2013, marginally down from the peak in December 2012 (287 percent).

(Read more: Euro zone economic recovery gathers steam)

Portugal's GDP is however expected to rise 0.8 percent this year, according to the Bank of Portugal. But economists have struck a cautious tone on the outlook for the economy.

"I think we would still be wary about saying Portugal will fare well. Certainly if you look at business and consumer sentiment, they suggest the economy is stagnant. That's a reason for caution. In addition, Portugal has high levels of private sector debt and borrowing cost for households and firms are still high," Ben May, European economist at Capital Economics told CNBC in a phone interview.

—By CNBC's Arjun Kharpal. Follow him on Twitter @ArjunKharpal

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