21/01/2013
Inflation and emerging markets worry M&G
Emerging markets are no safe haven. At a time when they figure in investment themes for 2013, emerging markets are not inspiring enthusiasm at M&G. Anthony Doyle, investment specialist director at M&G, who was on a visit to Paris on 18 January, says the time to avoid emerging marktes has come, particularly in the area of government debt. Emerging economies are doing well, Doyle admits, but valuations are often ahead of fundamentals. Therefore, caution is necessary. Some markets, and not small ones, are also the subject of some concern. These include China, where growth may fall back to a more moderate pace of 5% to 7%, at a time when inflation remains at high levels. China may continue to base its development on credit, and will need to move to a consumer-driven growth model. These reservations will not, however, prevent the firm from investing in some asset classes, such as emerging market corporate bonds. Another concern is inflation, which if not immediately, at least in the mid-term, is expected to return to the foregrouns, Doyle says, added that inflation does not appear to be a top concern for central banksers, who are more worried about weak growth and rising unemployment. Doyle cites the famous saying of Milton Friedman that “inflation is always and everywhere a monetary phenomenon,” and estimates that rising volumes on money markets, fed by hitherto unseen levels of quantitative easing, will eventually need to be corrected for.
