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EM inflation after six months of FX weakness
Weekly investor research
10 September 2018
Despite the fall in EM currencies this year, there is no evidence of pass-through from currencies to inflation. Inflation remains low and falling in a number of countries, some of which have had major currency weakness. Higher inflation tends to be concentrated in late cycle economies and countries with bad macroeconomic management. The real yield is now high and attractive in EM, in our view. In Brazil, one of the leaders in the polls ahead of October’s election is now in hospital. What does this mean? China is overhauling social security contributions, which may unleash significant investment in the corporate sector. The IMF discussions with Argentina continue, while South Africa sinks into a conventional recession. Protectionist threats continue to weigh on sentiment towards EM.