Those investors who have committed capital to the commodity price story have continued to prosper in the first few weeks of this year. However, for both the household and corporate sectors in many developing countries, soaring prices for raw materials and foodstuffs are becoming something of a nightmare, as they represent a significant deterioration in financial conditions.
Guest post by FxPro
In India, input costs are leaping higher, weighing heavily on profit margins and consequently corporate earnings. India’s Sensex 30 Index is down more than 12% already this year, the worst performance among the major emerging world bourses. According to the Securities and Exchange Board of India, global funds sold a net $1.1bn of Indian equities in January, after net purchases last year of $29.3bn. China likewise is extremely conscious of the danger posed by accelerating inflation, with the PBOC already lifting key interest rates and aggressively raising bank reserve requirements over recent months in an attempt to prevent rampant liquidity growth from fanning the flames of inflation. Rising inflation in turn is generating growing demands for higher wages. According to a recent survey conducted by a Chinese think-tank, China now has the second highest labour costs in Asia.
Interestingly, investors appear increasingly cognisant of the growing threat of inflation in the developing world. Emerging market equities have substantially underperformed equities in the major advanced economies this year; likewise, both bonds and currencies from the emerging world have underperformed those in the developed world. It would not be surprising if this trend continued for a while longer.
Michael Derks, chief strategist, FxPro
FxPro Financial Services Limited, authorised and regulated by CySEC (licence no. 078/07)
The material above is considered as a marketing communication and should not be construed as containing investment advice or an investment recommendation. This material has not been prepared in accordance with legal requirements promoting the independence of investment research, and that it is not subject to any prohibition on dealing ahead of the dissemination of investment research. FxPro uses reasonable efforts to ensure that any information used in the preparation of the above is reliable and does not guarantee its accuracy. This communication must not be reproduced or further distributed without prior permission of FxPro. CFDs are a leveraged product and incur a high level of risk which can result in the loss of all your invested capital.
