The ‘golden opportunity’ for EMs
While developed markets feel the hit of inflation, it is expected emerging markets (EMs) will be largely immune, according to Federated Hermes.
EMs were used to dealing with high inflation which Hermes said presented a ‘golden opportunity’ for EMs to progress while developed markets were learning to deal with inflation and the knock-on investment challenges.
For example, historically, inflation had reached as high as over 2,000% in Brazil and Argentina while Turkey had seen inflation of 138%.
Kunjal Gala, head of emerging markets, said: “We expect inflation to be less of an issue for emerging markets due to favourable demographics, manufacturing capability, availability of critical resources, and focus on supply-side reform/infrastructure.
“Medium/long term, we anticipate a shift in the investment environment that will likely be decisively different from the last 10 years. There is a likely change in the regime as investors evaluate the impact of higher-than-normal inflation and cost of capital with sticky supply-side constraints (energy, commodities, and workforce).
“Emerging markets have a golden opportunity to improve their competitiveness as inflation levels the playing field globally.”
AUTHOR
Laura Dew
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