Inflation no longer as big a threat as 12 months ago

ON EMERGING MARKETS

Last year emerging markets faced a difficult backdrop with a deteriorating global environment; high levels of inflation in emerging markets; high relative valuations at the start of the year and rising concerns over the prospect of a ‘hard landing' in China.

This all contributed to 2011 being the worst year of relative performance for emerging markets since 2000. Volatility can be expected to continue to be a feature of 2011, but there are a number of reasons why we can look forward to 2012 with greater optimism. On the positive side, inflation is no longer the threat that it was 12 months ago and consequently, there is scope for looser monetary policy within emerging markets, notably in countries such as Brazil and India where interest rates are high.  Commodity and, most importantly, food prices have fallen rapidly, the only exception bein...