All eyes have been on
Europe after beleaguered Greece received its second massive bailout in two
years, from other members of the 17-country Eurozone. But as the fallout from the
deal reverberated through the markets yesterday, one important question is how
will Asia – the growth engine of the world – be impacted. Here
David Pinkerton, chief investment officer of
Falcon Private Bank, gives his
view.

The second bailout package has
certainly bought more time for Greece to get their indebtedness to a more
sustainable level, mid-term. With that decision a disorderly default has been
prevented for now. However, the magnitude of the additional necessary and very
painful austerity measures will put the already stricken economy in even more
trouble.

It remains to be seen if
the forced measures by the Trojka will show the necessary positive effects
in order to get the financials back on track. As for now, our confidence that
Greece will be able to turn around the ship is muted.

In respect to the Asian markets, this step has been already positively priced in within the last weeks. The Eurozone
is one of the largest export regions for Asian economies and therefore it is of
outmost importance that the demand from this area stays intact. With the
measures taken the breakup of the Eurozone has been prevented and will bode
well for future terms of trade.

Meanwhile, Japan and China have
realized that the Eurozone stands at the abyss and the rescue of troubled
economies in the European periphery is necessary to safeguard the important
export markets for them.

A sensible way of doing this is by
getting involved more in the IMF. For China it is another opportunity to get
more positively involved into global affairs. With helping out in Europe as a
white knight it can improve its image and, as already pointed out, defend their
economic interest. 

In terms of what investors should do
regards the ongoing crisis in Europe and inflationary pressures in China, we recommend
balancing the portfolio in different dimensions. To hedge against future
inflation we still like gold at the levels. In times of uncertainty the yellow
metal represents a store of value and is not connected to any paper currency.

With the recent efforts by the
Trojka to calm the European turmoils risk assets have witnessed a remarkable
rally which was further supported by the unexpected robust development of the
US economy. Furthermore, with all the forms of quantitative easing globally,
the reflation trade is not over yet.

On the equity side we favour
emerging Asia and see catch up potential in Europe. On the fixed income side we
like emerging market debt, high yield and corporate bonds whereas we do not see
much value left in treasuries.