A decade ago, Brazil and Turkey were often linked in traders’ minds as the countries fighting hardest against massive inflationary currents. Now, the two countries could not be farther apart.

Turkey is now cutting interest rates in order to beckon even more growth into its burgeoning economy, with relatively little fear of near-term inflation.

But Brazil seems to be forced to keep its interest rates among the highest in the world in order to curtail inflation — even if it means that its currency, the real, will remain too strong to give local manufacturers a fair base to compete against their foreign rivals.

Remarkably, Turkey’s move has actually weakened the lira  by making its bonds less attractive to the global investors who have piled into every country that offers relatively high yields:

It is a vicious cycle. Investors now think that Brazil will have to raise interest rates another 175 basis points in 2011 to fight inflation, which will make Brazilian bonds all the more attractive, which will pump foreign capital into real-denominated markets and ultimately leave the real stronger than ever.

On the other hand, Turkish bond yields have risen as well — but only because foreign investors are steering clear of these assets to seek higher rates elsewhere.

Meanwhile, lower rates mean lower borrowing costs for Turkish companies, and a weaker lira means an improved competitive outlook. Good for constituents in the iShares MSCI Turkey Invest Mkt Index ETF (NYSE:TUR).

Higher rates and a strong real mean the opposite in Brazil. Not great for the Brazilian stocks in the iShares MSCI Brazil Index ETF (NYSE:EWZ) but ultimately a plus for the currency itself, as reflected by the WisdomTree Dreyfus Brazilian Real ETF (NYSE:BZF).

Written By Tim Seymour From Emerging Money

Emerging Money provides insightful and timely information about the increasingly important world of Emerging Market investments. CNBC Emerging Markets Contributor Tim Seymour leads the team of Emerging Money to bring you cutting edge global news and analysis.

About Tim Seymour: Tim is a founder of Emerging Money. He is a founder and Managing Partner at Seygem Asset Management, and The Emerging Markets Contributor to CNBC. Seygem Asset Management focuses on investing throughout the global emerging markets asset class. With a view that emerging and developing economies will continue to outpace the economic growth and advancement of developed economies, Seymour has devoted a career to investing in the dominant markets of tomorrow, today. Seymour’s career has included significant experience in both alternative asset management (hedge funds) and capital markets, having launched two hedge funds, and built the largest Russian broker dealer in the USA. Seymour started his career at UBS, focusing on international credit (cash, swaps, forex) in a specialized hedge fund group (New York). Seymour completed the firm’s training program after graduating with an MBA in international finance from Fordham University. Seymour received his undergraduate degree at Georgetown University.

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