Emerging Money: Inflation Safety Zone
Inflation appears to be escalating throughout emerging markets. According to Fitch Ratings rapidly rising consumer prices are threatening the credit-worthiness of emerging economies and the situation is worsened by the reluctance of some emerging markets to allow nominal currency appreciation.
Among the 73 emerging economies it rates, Fitch identified Bulgaria, Suriname, Latvia, Lithuania, Ghana, Vietnam and Sri Lanka as highly vulnerable to inflation shocks based on the degree of their domestic overheating and monetary conditions.
Fitch said emerging Europe featured prominently among the most at risk economies because significant economic imbalances there have been fuelled by rapid private credit growth. "Russia is also the most vulnerable of the BRICs (Brazil, Russia, India and China) by a wide margin," it added.
There’s no question that inflation is escalating sharply in Russia, adds Tim Seymour, Fast Money’s favorite emerging markets trader. It’s also an issue in India and South Africa where inflation reached 10.4% in April, that’s a 5-year high.
However, Brazil could be a safety zone, he adds. Brazil has two things that allow it to insolate itself from inflation 1) it’s currency is up 20% year over year which gives the economy room to absorb higher prices. 2) they have “real” rates. I expect companies to continue to do well in this nation.
How would you trade it?
My favorite ways to play Brazil are as follows; banks such as Unibanco , consumer plays such as Perdigao and Sadia and with service providers such as Companhia de Saneamento Basico ,Seymour says.
Looking for more plays? Check out the companies in the Emerging Money Top 20, an index made up of 20 firms poised to profit from explosive global growth.
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Trader disclosure: On May 28, 2008, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s Fast Money were owned by the Fast Money traders: Macke Owns (INTC), (WMT), (MSFT); Adami Owns (C), (GS), (INTC), (MSFT), (AGU), (NUE), (BTU); Najarian Owns (AAPL), (BHI), (BUD), (TSO), (XLF), (HPQ), (ANR), (ENER); Najariain Owns (EXPE) Calls; Najarian Owns (BAC) Puts; Finerman Owns (GS); Finerman's Firm Owns (AAPL), (AEO), (MSFT), (RL), (SUN), (TSO), (VLO), (WLP); Finerman's Firm Owns SPX Index Puts; Finerman's Firm And Finerman Own (C) And (C) Leaps; Finerman's Firm And Finerman Own (HD); Finerman's Firm Is Short (IYR), (IJR), (MDY), (IWM), (SPY), (BBT)