Greece Will Be Forgotten Like Dubai: Currency Expert
There is no evidence of contagion from the Greek debt debacle to other markets, but the country's woes will help push the euro down, boosting exports for some countries in the single European currency area, David Bloom, global head of foreign exchange research at HSBC, told CNBC Monday.
On Friday, Greece asked for the activation of a package of aid from the European Union and the International Monetary Fund worth up to 45 billion euros ($60 billion), but analysts said the decision was unlikely to calm market jitters.
But Bloom pointed out that in cases of contagion, markets "start acting irrationally" and bond yields in other countries rise without reason. In Greece's case, this has not happened and yields on emerging market debt have come down, he said.
"Greece will be like Dubai. Remember that story? Whatever happened to it?," Bloom told "Squawk Box Europe."
In November Dubai, one of the seven emirates of the oil-rich United Arab Emirates, shocked markets as state-owned construction conglomerate Dubai World asked for a standstill agreement on its $26 billion in debt.
After some political wrangling, richer neighbor Abu Dhabi stepped in and helped Dubai and the headlines stopped. Dubai announced a $9.5 billion restructuring of its Dubai World conglomerate and property developer Nakheel.
Germany is the biggest opponent of a bailout for Greece in the euro zone. With regional elections due in May, German politicians insist that the Balkan country must profoundly restructure its economy making painful budget cuts to receive the aid.
"If this is such a big issue, why doesn't it cause contagion somewhere else?" Bloom said.
- Watch the video above for the full interview with David Bloom.
German analysts and media editorialists, as well as commentators in other countries, have pressed for Greece to voluntarily leave the euro zone and devalue its currency to get out of its debt problems, but Bloom says Germany does not actually want this to happen.
"It's the best currency crisis Germany has ever had. They don't want Greece to get out," he said.
Sell the Euro, Sell the Dollar
Greece faces tough times ahead, Bloom added.
"Real wages have to go down and the real economy has to adjust. It's a very, very painful process."
Faced with a falling dollar and a Chinese currency pegged to the greenback, exporters in the euro zone have been pressing the European Central Bank to take more steps to weaken the euro since the crisis started in 2007.
Judging on purchasing power parity, the euro is overvalued and its fair value should be around $1.15, Bloom said.
But "the one it's overvalued against is in big trouble," he added, pointing out that the US government still had to issue a lot of debt to cover its gaping deficit.
The best solution for investors will be to invest in emerging markets, because this is where economic growth will be, according to Bloom.
"Sell the euro, sell the dollar and buy the emerging world," he said.
Some investors have complained about the lack of transparency in emerging markets, but Bloom said the Greek crisis started with the government admitting the country had lied about its budget deficit.
"Where we thought we had certainty, we now have uncertainty," he said. "Don't tell me about lack of transparency, credibility… we've got them in the West now. So let's buy into some growth."
Developing world countries are going up on the prosperity scale while developed countries are going down in standards, according to Bloom, and there is no way Western economies can compete with the East, even if they manage to weaken their currencies against Asian ones.