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QNBK 143.8 312,074
SABIC 95.98 4,534,377
GFH 0.62 131,131
DU 5.58 788,634
ALMARAI 73.08 135,963
NBAD 11 4,851,634
EEC 20.57 1,278,229

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Source: NCB Capital

A Greek tragedy

The Greek government may prove the butterfly that sets off a storm in the unfolding drama of bond market jitters. Although Athens has received the backing of its EU peers, it difficulties have highlighted the endemic fiscal challenges of Western governments. This creates a considerable prospect of contagion. While Greece’s double-digit (as a percentage of GDP) budget deficit and triple-digit public sector debt are exceptional, the situation of many of its Mediterranean peers is not much better. Nor, for that matter, is that of the UK and the US. We have now reached a point where the disease and the cure are effectively identical. More stimulus is needed but it may well prove unaffordable. The market nervousness has also revealed the limited progress made last year in addressing structural problems as the stimulus-driven recovery was taken by many as a sign to revert to business as usual.

A risk of contagion? While Greece may right now seem like the weakest point in the Euro-zone economy, investors have been quick to focus on other countries as well. Portugal has been deemed the second-worst offender but the situation in neighboring Spain is not much better. It is made worse by the low probability of returning to trend growth any time soon with a 3% annualized GDP contraction in Q4. Even seemingly more resilient economies have vulnerabilities. For instance France has to refinance a remarkable 20% of its public debt this year. The large number and significance of economies which could be affected by bond market jitters could conceivably trigger a renewed OECD-wide crisis.

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