North American Portfolio Strategist Martin Roberge notes that the impact of a Greece debt default or an exit from the Eurozone would have modest direct repercussions on global growth. Greece's share of European GDP is 1.8% and 0.3% of world GDP. A non-trivial risk is through the financial channel where the Greek crisis triggers contagion across the globe as capital flows are disrupted. But again, financial links between Greece and the rest of the world are very modest.
The Greek crisis has reached a stage where market turbulence is necessary to elucidate the issues at stake for the Greek population. Whether the creditors' bailout proposal is accepted or not this week-end, Martin believes investors should not rush for the exit upon a negative outcome. The real key date in Martin's view is July 20 when a 3.5 billion Euro payment is due to the ECB, Greece's liquidity spigot.
Defensive yielders failed to provide protection to investors in June. In fact, this segment of the market remains the worst performer on the TSX year-to-date. The reason is the steady rise in bond yields which has caused a net shift in investors' preference
Martin's Chart of the Week shows that exports of DMs (4.4%) and EMs (0.5%) to Greece represent a very small share of GDP. As for financial contagion, Greek debt is no longer held by the private sector outside Greece; it is mostly in the hands of the IMF and the ECB.
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