Inflation is a word fixed income investors don’t typically want to hear, but it may affect certain emerging markets (EM) countries should the U.S. inflation rise, according to a recent Bloomberg article.

“The fixed-income securities of the three countries appear the most vulnerable to any surge in consumer prices, according to a Bloomberg study of 10 emerging markets” a Bloomberg article noted. “Their real bond yields — those adjusted for inflation — are the lowest in the group versus their three-year average. This gives them the smallest margin to spare if the nascent inflation signs prove the harbinger of a global price shock, making the bonds less attractive as yields adjust higher.”

“Should central banks be forced to have a less dovish stance and turn more neutral, this would cause a sell-off in the short and belly of the curve,” said Jean-Charles Sambor, London-based head of emerging markets fixed income at BNP Paribas Asset Management.

Russia, India and Mexico Bonds Could Be Vulnerable to U.S. Inflation 1

In the meantime, exchange-traded fund investors can look to equities of the respective countries:

  • VanEck Vectors Russia ETF (RSX): seeks to replicate as closely as possible, before fees and expenses, the price and yield performance of the MVIS® Russia Index. The index includes securities, which may include depositary receipts, of Russian companies. A company is generally considered to be a Russian company if it is incorporated in Russia or is incorporated outside of Russia but has at least 50% of its revenues/related assets in Russia. Such companies may include medium-capitalization companies.
  • VanEck Vectors India Growth Leaders ETF (GLIN): GLIN seeks to replicate as closely as possible, before fees and expenses, the price and yield performance of the MarketGrader India All-Cap Growth Leaders Index. The fund invests substantially all of its assets in the Subsidiary, a wholly-owned subsidiary located in the Republic of Mauritius. The index is comprised of equity securities which are generally considered by the index provider to exhibit favorable fundamental characteristics according to the index provider’s proprietary scoring methodology.
  • iShares MSCI Mexico Capped ETF (NYSEArca: EWW): seeks to track the investment results of the MSCI Mexico IMI 25/50 Index. The fund will at all times invest at least 80% of its assets in the securities of its underlying index and in depositary receipts representing securities in its underlying index. The underlying index is a free float-adjusted market capitalization-weighted index with a capping methodology applied to issuer weights so that no single issuer exceeds 25% of the underlying index weight, and all issuers with a weight above 5% do not cumulatively exceed 50% of the underlying index weight.

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