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Emerging Markets Quarterly

Fixed Income/Foreign Exchange: Taming Inflation—Mission Impossible?

By Natalia Gurushina
Apr 21, 2011 8:00:00 PM | Last Updated

  • We expect greater diversification in the emerging market (EM) inflation outlook, with Europe, the Middle East and Africa (EMEA) having the highest and Asia ex-Japan (AXJ) the lowest inflation momentum in H2 2011.
  • We recommend maintaining longs in inflation-linked debt in EMEA (Poland, Turkey) and LatAm (Brazil). We reduce EM local currency debt underweight by increasing duration in AXJ (with the exception of the Philippines), but we are still short duration in EMEA and LatAm for now. We look to re-enter 2y cross-currency payers in Russia and short-end swap payers in Poland.
  • We recommend G2-funded longs in RUB, CLP and MXN, and G3-funded longs in CNY, SGD, INR and IDR.

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