Inflation Flip Gives Emerging Markets Edge Over Rich Nations

Core Insights - Emerging-market bonds are experiencing a rally driven by a rare slowdown in global inflation trends, with some markets like Hungary, Brazil, and Egypt seeing gains exceeding 20% [1][5] - Investment managers, including Morgan Stanley Investment Management and Ninety One Plc, are positioning for further gains in local-currency debt, anticipating that central banks in emerging markets will have more room to cut interest rates compared to developed nations [2] - The average annual inflation in emerging markets has decreased to 2.47% in the July-September quarter, the lowest since early 2021, contrasting with a rise in inflation to 3.32% in developed economies [6] Group 1: Inflation Trends - A significant slowdown in inflation in emerging markets has been noted, with consumer prices growing more slowly than in developed nations for two consecutive quarters, a trend not seen for over 35 years [3] - The latest inflation data supports expectations for deeper and faster monetary easing in emerging markets, which could benefit the bond market [6] Group 2: Monetary Policy and Rate Cuts - Many emerging-market countries are already in a rate-cutting phase, with Mexico and Poland recently easing their policies, while others like Thailand, South Korea, Turkey, and India are expected to follow suit by year-end [7] - Despite the easing, most central banks are proceeding cautiously, maintaining rates above inflation levels, as seen in Brazil where the real rate is around 10% [7][8]