QE2 will increase inflationary pressures for some emerging countries and their asset prices will remain at high levels. The US Fed is using QE2 to increase the money supply in order to reduce the debt burden. US policymakers have accepted some levels of inflation in hopes of boosting domestic consumption and reducing the country's level of unemployment.
We believe the world falls in two camps: the first being the "QE Camp" including the US, UK, and Japan; the second being the "non QE camp" consisting of emerging market economies which is led by China. The former has and will continue to loosen its monetary policy in efforts to revive economies, devalue currencies and inflate asset prices. The "non QE camp" is focused on containing inflationary pressures through tighter monetary policies.
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