HSBC Global Asset Management has launched the first inflation linked emerging market bond fund. It gives investor a way to obtain positive exposure to inflation. This bond has its principal indexed to inflation, as opposed to most bonds in which the principal that is paid upon the maturity remains unchanged. As a result, this bond allows the principal and the coupon payment to increase over time if inflation continues to increase.
In periods of increasing inflation, an inflation linked bond can very well outperform other asset classes. also, emerging market currencies have been appreciating strongly due to stronger fundamentals of these countries from areas such as ample foreign reserves and improving current account deficits.