Risk-on trade back in game; EMs to benefit: Macquire

Richard Gibbs, global head at Macquarie Securities spoke to CNBC-TV18 on how he reads the news flow from the Greek deal.

Below is the edited transcript of the interview. Also watch the accompanying video. Q: What have you made of the outcome over last night and how do you think equity markets would react to it?
A: It probably ended seven months of uncertainty and negotiation in terms of that debt swap and of course that will reduce the stock of accumulated debt by near 100 billion euro. The level of indebtedness and the pressure of that reducing obviously also the debt servicing cost reducing with that agreement for the 3.6% coupon payment that will be attached to those 30 year euro bonds for Greece. So we have removed that uncertainty. Where the uncertainty still lies as we are seeing is of course further expenditure reduction measures to be implemented in Greece. We still need to see the details and the legislation for these reductions that total 325 million euro at this point in time which have been offered by the Greek Prime Ministers.
What we are going to see play out is risk-on trade coming back in the game, we are going to see that liquidity and capital that had been domiciled and sitting on the sidelines with the uncertainty and all that default by Greece now coming back into play. That means that obviously flows into emerging markets and high yielding economies and currencies are going to start the pickup. That does for the rupee suggest that we are moving forward towards into that 48 range. Q: The big uncertainty now is those fresh conditions and the details regarding that. This is what has put a cap on the gains in the US markets also overnight. How do you think it moves from here or do you think all of these uncertainties have already been priced in and the second question is what does this now mean for countries like Portugal?
A: These uncertainties, the Greek parliament possibly will sit over it this weekend to try and actually get legislative agreement on the expenditure reduction measures. That means obviously, we have got a weekend of potential turbulence as it goes backwards and forwards. There are ongoing demonstrations in Greece, of course, and protest against the expenditure reductions and pension cuts and spending cuts overall that still need to play out.
We are seeing in Asia this morning rather displeasure in relation to the market, the Straits for e.g. down 0.5%, Hong Kong also opened down with some of the other markets flat to slightly up. So it is still playing through and is still rather moving feisty in that regard.
So I think it would depend on what ensues in the next 48-72 hours in relation to those legislative measures because this has in the criticism of lot of the euro leaders that we have seen promises made and we simply not seeing the expenditure reductions coming through in Greece.
What it means for Portugal is that Portugal obviously will be the next one in focus and set a stage because if it believes that we have resolved the Greek situation and they are set straight so to speak, then investors are going to increasingly look at Portugal where there has been a manifest deterioration in their budget deficit to GDP in the last three years moving from 80% of GDP to 130% of GDP.