A Quick Refresher On Why Everyone Is Fleeing Emerging Markets And Falling In Love With The US And Japan

If you need a reminder as to why everyone is really worried about emerging markets, and now suddenly keen on the U.S. and Japan, look no further than Indonesia.

Indonesia’s consumer price index soared in December to 7% year-over-year, and now Deutsche Bank thinks it could rise to 7.8% in April. A rate hike looks imminent, but could take until Q2 2011, according to Nomura.

What’s really worrying is that you have this new group movement amongst emerging market economies. They’ve all tried things like pushing for bank reserve increases and trying to stop food inflation to price fixing, but to no avail.

Now almost lock step, the emerging world is turning to rate hikes to combat inflation. Brazil’s could come as early as today. India’s are coming fast and furious. China is only getting started. And now the little guys (comparatively) like Indonesia are starting to get in on the game.

With rates rising across the board, the whole emerging markets play is now less appealing. Investors have started to shift their cash back home, and pretty much every bank is in love with playing U.S. and Japanese equities.

So while the headlines right now may be about food price inflation causing revolutions in North Africa, they could soon be about serious economic trauma in the developing world as a result of money flooding out of investments there.

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