Korea Reveals That Inflation Is A Pan-Asian Problem (AGOL, EWY, GML)

The main gauge of Korean retail inflation surged to 4.5% last month, well above Seoul’s target and revealing that price pressure is alive and well even at the industrial heart of Asia.

On a sequential basis, Korean consumer inflation is now racing along at a rate of 0.8% a month. An interest rate hike next week is quite likely at this point and economists are fretting that it simply will not work.

Part of the problem here is that like many countries, Korea has elected to weaken its currency, the won, while allowing inflation to gain a toehold within the economy as a result.

A surprise interest rate hike last month did very little to remedy the situation, which has left Seoul with both a won that is too strong for comfort and domestic prices that are rising too fast to ignore.

Economists currently think inflation in Korea could hit 5% — far above the 3% target advocated by the country’s president in his pursuit of outright price controls.

The problem, as elsewhere in Asia and throughout the world, is food and fuel. Energy prices surged nearly 13% over the last year and food input costs soared a full 17.7%.

Obviously, the iShares MSCI South Korea Index (NYSE:EWY) is the way to trade the long-term impact of what could truly become a stagflationary environment.

But this is not only Korea’s problem. At this point, the impact of slowing growth and persistent inflation could have a similar effect on the broad SPDR S&P Emerging Latin America (NYSE:GML).

Conversely, the ETFS Asian Gold Trust ETV (NYSE:AGOL) looks more and more interesting as gold-loving Asia sees more and more inflation.

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.

Leave a Reply

Your email address will not be published. Required fields are marked *