By Alistair Smout
LONDON, July 24 (Reuters) – Foreign investors have made
gains of some 10 percent this year on emerging market bond
portfolios but now dread future gains being eaten into by an old
foe — food price inflation.
Billions have been pumped into emerging market bonds this
year by investors looking for alternatives to western markets
where yields are minimal or even negative, especially in Europe.
Analysts say one reason investors have bought into emerging
market bonds — and still expect further gains — is that
sagging global growth is seen bearing down on inflation, giving
emerging economies scope for extensive monetary easing.
A sudden rebound in food prices, which often make up a
larger share of Consumer Price Inflation baskets in poorer
developing countries, has complicated this outlook.
Maize (corn) and wheat export prices jumped some 20 percent
in the first three weeks of July over their June level, the
United Nations’ Food and Agriculture Organisation said last
week. Wheat has risen 25 percent year-on-year.
However, weather-related grain price gains can also be
vulnerable to swift falls. The effect of food price rises also
varies greatly from one economy to another.
“There have been massive food price rises in the past few
weeks — before that happened, emerging market inflation had
been coming down quite nicely,” said Maarten-Jan Bakkum,
emerging markets strategist at ING Investment Management.
“If food prices continue to rise, emerging markets look less
attractive as a whole.”
Continued…
