In a world of negative real rates, EM Asia is a beacon of hope

In a world of negative real rates, EM Asia is a beacon of hope

Kay Van-Petersen
Global Macro Strategist

Summary:  It's time to take a step back from developed markets if you want to find positive yields

Inflation is no transitory joke … 

Take it from someone who—unlike my peers—was originally in the transitory camp of inflation; after all, the tri-factor meta-trends of ever-lower US yields since the 1980s, deflationary forces of technology, and ageing demographics in most western and developed markets were goliath factors that have been running for decades. 

Now it’s not so much that these meta-trends have been usurped overnight; it’s more the recognition of the fact that we could well be entering a medium inflationary regime which could run for years. 

For context here is a table of recent inflationary prints across the globe (September 16, 2021)*:

*Worth noting that Australia and New Zealand CPIs are quarterly, unlike the default monthly figures for other countries. Sources are Saxo Bank and Bloomberg.

The fascinating thing you can see is that out of the major economies in the world, from both a DM and EM representation, the US is fourth in terms of having the highest inflation rate at 5.3%, but has a central bank rate of 0.0%—way lower than the +4.50% to +6.75% range across Russia, Brazil and Mexico. 

If someone had told you in December 2019 that in 2 years’ time the US would be showing higher inflation than places like South Africa, Indonesia and India, alongside a central bank that had not hiked or tapered yet, they would have been laughed out of the room. 

The other startling takeaway is the +3.2% to +3.8% range of inflation across the other DMs, with all of them having all-time low central bank rates. What is even more revealing of the inflection point, is when you compare the inflation and central bank rates pre-Covid (December 2019) and today (September 2021). 

For instance, pre-Covid Norges bank’s rate was +1.50% with inflation running at +1.40%. Today inflation has more than doubled to +3.40%, while the Norges bank rate as of early September was sitting at 0.00%. It’s not hard to fathom a pathway where Norges bank returns to its +1.50% rate, if not higher, over the next 12 months. 

Meanwhile in China, Indonesia and India, inflation has actually been falling from pre-Covid levels to the present. And in the case of China’s PBOC, they never cut rates during the Covid crisis. 

Negative real rates reign supreme in developed markets …

Negative real rates seem to be a function of developed markets that have lost the ability to have true price discovery, and are instead influenced by synthetic pricing as a result of extraordinary credit growth. A key inflection point was seen in 1971 when Nixon took the US off the Gold Standard and with it, accountability. Also after the 2008 financial crisis, the predominant response from the US and most of the world was one of monetary policy expansion but fiscal policy restraint. Obama was a Democrat president and Congress was controlled by Republicans who, now being out of the White House, had found faith again in being fiscally conservative. 

For additional context on the extent of this synthetic pricing that is prevalent in our markets, the Fed’s BS/GDP ratio grew from around 6% prior to the sub-prime 2008 crisis to a high of 26%, in measures that were supposed to be “temporary”. “Tapering” brought us back to a low of 18%, and then post-Covid we’ve seen that ratio spike to 38%. Now where could this number get to?

When Abenomics kicked off in the back end of 2012, the BoJ BS/GDP was around 28%. Today, less than 20 years later, it’s 133%, with no signs or indications of a reversal of policies to any kind of normalisation. The BoJ own the vast majority of the bond market in Japan and depending on whose data you trust, potentially up to 30% of equities. And this from the third biggest country that, unlike the US, is not even the global reserve currency of the world, with the deepest and most valuable equity, debt, real estate and intellectual property markets.

If we normalise the quarterly growth of the Fed Balance Sheet versus the S&P 500 from the end of 2007 to the end of August 2021, we can see that the Fed’s Balance Sheet grew by +935% versus the S&P 500’s +308%.   

Source: Bloomberg and Saxo Group

The net result of all this liquidity in the system is developed markets that cannot reverse course back to a world of positive real rates. The political capital, will and courage is not there. Perhaps most alarming, the zeitgeist and the societal imbalances would just not stand for it. In the DMs we’ve just had the biggest wealth distribution from government balance sheets to its citizens and the vast majority are going to get used to this entitlement. And politicians being politicians, they will respond like monkeys, pushing the same button over and over all because it feels good and leads to their further entrenchment. The flawed incentives, vested interests of the elite, and lack of accountability and transparency from policymakers have DMs stuck in a vicious feedback loop that only compounds the house of cards that has been building since 2008. 

Emerging markets are the only place to find positive real yields. 

EM Asia is host to some of the biggest real rates yielding bond markets in the world. These include Indonesia (+4.5%), China (+2.1%), and Malaysia (+1.1%); contrast this with the negative rates to be found in the USA (-4.0%) and the Eurozone (-3.7%).

Source: Bloomberg and Saxo Group

Explore Saxo’s products


The Saxo Group entities each provide execution-only service and access to Analysis permitting a person to view and/or use content available on or via the website is not intended to and does not change or expand on this. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to Saxo News & Research and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Group by which access to Saxo News & Research is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Saxo News & Research or as a result of the use of the Saxo News & Research. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. Saxo News & Research does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws.

Please read our disclaimers:
- Notification on Non-Independent Investment Research (
- Full disclaimer (

None of the information contained here constitutes an offer to purchase or sell a financial instrument, or to make any investments. Saxo does not take into account your personal investment objectives or financial situation and makes no representation and assumes no liability as to the accuracy or completeness of the information nor for any loss arising from any investment made in reliance of this presentation. Any opinions made are subject to change and may be personal to the author. These may not necessarily reflect the opinion of Saxo or its affiliates.

Saxo Capital Markets HK Limited
19th Floor
Shanghai Commercial Bank Tower
12 Queen’s Road Central
Hong Kong

Contact Saxo

Select region

Hong Kong S.A.R
Hong Kong S.A.R

Saxo Capital Markets HK Limited (“Saxo”) is a company authorised and regulated by the Securities and Futures Commission of Hong Kong. Saxo holds a Type 1 Regulated Activity (Dealing in Securities); Type 2 Regulated Activity (Dealing in Futures Contract); Type 3 Regulated Activity (Leveraged Foreign Exchange Trading); Type 4 Regulated Activity (Advising on Securities) and Type 9 Regulated Activity (Asset Management) licenses (CE No. AVD061). Registered address: 19th Floor, Shanghai Commercial Bank Tower, 12 Queen’s Road Central, Hong Kong.

Trading in financial instruments carries various risks, and is not suitable for all investors. Please seek expert advice, and always ensure that you fully understand these risks before trading. Trading in leveraged products may result in your losses exceeding your initial deposits. Saxo does not provide financial advice, any information available on this website is ‘general’ in nature and for informational purposes only. Saxo does not take into account an individual’s needs, objectives or financial situation. Please click here to view the relevant risk disclosure statements.

The Saxo trading platform has received numerous awards and recognition. For details of these awards and information on awards visit

The information or the products and services referred to on this site may be accessed worldwide, however is only intended for distribution to and use by recipients located in countries where such use does not constitute a violation of applicable legislation or regulations. Products and services offered on this website are not directed at, or intended for distribution to or use by, any person or entity residing in the United States and Japan. Please click here to view our full disclaimer.

Apple, iPad and iPhone are trademarks of Apple Inc., registered in the US and other countries. AppStore is a service mark of Apple Inc. Android is a trademark of Google Inc.