Frontier Markets – Is inflation that bad?
Investors and businesses continuously monitor the level of inflation, whose increment is generally considered a concern. Post pandemic rising inflation and its potential effects have been and still are one of the most discussed topics by the financial community.
We believe it is too early to pick a side in the debate about the staying power of recent inflation, especially considering that year-over-year prints still compare today’s prices to a very low base in the pandemic’s history. Nevertheless, having an overview of how inflation has historically impacted equity markets is useful.
The research tells us inflation negatively affects markets more in the short term than in the long run, having a more powerful negative impact on growth stocks rather than value stocks. This could explain why Frontier Equity Markets, mainly composed of value stocks, usually show a positive correlation with inflation, especially in the long-run.
