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The following commentary comes from an independent investor or market observer as part of TheStreet's guest contributor program, which is separate from the company's news coverage. The opinions expressed are those of the author and do not represent the views of TheStreet or its management.

By Ivan Martchev, InvestorPlace



) -- Recently, I opined that my

global investment strategy

was to sell euro-denominated risk assets, such as PIIGS sovereign bonds or European financials that were caught up in the short-squeeze rally following the "successful" auction of Portuguese 10-year bonds below 7%. I had referred to Portugal being in the final stages of a bailout plan, and someone commented that there was no such bailout -- I beg to differ.

The PIIGS Are Screaming (Again)

The only reason the Portuguese bond auction was "successful" was the European Central Bank (ECB), which was taking Portuguese bonds off the hands of banks that participated in this auction. That is not what I would call a "market-determined interest rate." At a rate of more than 7%, the Portuguese government will have trouble funding itself as interest on the bonds becomes cost-prohibitive. As I write this, those "successfully auctioned" bonds in January are now trading with a yield of 7.42%. Someone should speed up finalizing that bailout plan fast.

Why should investors in

emerging markets

care about what goes on in Europe? Because we have low overall inflation in the U.S., a deflationary shock in PIIGS countries (Portugal, Italy, Ireland, Greece and Spain) driven by austerity measures and bank losses that curb lending would mean inflationary problems in most emerging markets. The aggressive monetary policies that are targeting the problems in Europe help create inflation in the emerging world.

This is why India was down so much in January -- and Indian small-caps as measured by the

Market Vectors India Small-Cap ETF

(SCIF) - Get VanEck Vectors India Growth Leaders ETF Report

were down even more -- as market participants assumed the BRIC market had the least stamina to withstand the developed-world-induced inflationary tsunami. We live in a global economy; what happens in the West affects the East.

Go Long Indian Stocks

Right now, I would be a buyer of Indian equities that have been punished by this inflationary scare such as

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Tata Motors

(TTM) - Get Tata Motors Ltd. Report



(HDB) - Get HDFC Bank Ltd. Report



(IBN) - Get ICICI Bank Ltd. Report

. Indian stocks may go a little lower, but I know the fundamental backdrop is sound. (Read the related article on

why inflation is investors' worst problem


Go Short European Banks

Go Short European Banks

I feel very differently about the fundamental backdrop in Europe. I would be a seller of any euro-denominated PIIGS risk assets that saw a short-squeeze driven spike in January. One way to play the coming selloff, which is likely to take out the lows seen in many European financials in early January, is to outright short them. I see much more downside for


( STD),


(BBVA) - Get Banco Bilbao Vizcaya Argentaria SA Report

and even

Deutsche Bank

(DB) - Get Deutsche Bank AG Report


Someone pointed out that to me that the majority of STD's and BBVA's business is outside Spain. However, the point is that if you see funding stress for STD and BBVA of the kind we saw for smaller Spanish banks last year, it does not matter what proportion of their business is in Spain. Rather, what matters most is whether they can get interbank funding that is not cost-prohibitive.

As for DB, rumor has it that German banks are long a lot of PIIGS bonds that have not been properly marked down for the huge haircuts that are inevitably coming. As the largest German bank, DB will certainly see a downward rerating in the market as the haircut risk factor is priced in.

For those that don't like shorting, simply stay away from EU financials, as I believe the cheap book values are highly deceptive. No book value is low enough for a bank with funding problems. And while we haven't seen this quite yet, the likelihood is increasing by the minute, given the action in credit-default swaps and the stocks themselves. I have seen selling into strength in STD, BBVA and DB over the past week. (Also read the related article about how

regional bank buyouts

will boom in the U.S. this year.)

Buy Short Euro ETF

Another way to play this is to go long the

ProShares UltraShort Euro

(EUO) - Get ProShares UltraShort Euro Report

, which is a leveraged ETF that delivers twice the inverse daily performance of the euro. I don't see the euro going to more than $1.40, and I do see it potentially trading to less $1.20 this year as the rolling sovereign debt crises continue on schedule. (Also check out the related article,

5 global ETFs to buy now


It gives me no pleasure, as an EU passport holder myself, to be bearish on the euro, but a single currency with separate treasury departments and wildly diverging monetary policy needs simply does not work. More evidence to support this view is coming to your quote screens shortly.

Ivan Martchev is an editorial director at InvestorPlace Media, and has served as a financial editor, a portfolio manager and an equity analyst.

This commentary comes from an independent investor or market observer as part of TheStreet guest contributor program. The views expressed are those of the author and do not necessarily represent the views of TheStreet or its management.