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As I write this I'm sailing across the sky, 35,000 feet in the air in a Boeing (NYSE: BA) 777, heading home from a great vacation in Grand Cayman. It's one of the most beautiful islands in the Caribbean. White sandy beaches and great snorkeling and diving.

I also like vacationing in Grand Cayman because of its stable currency. The Cayman dollar is pegged to the U.S. dollar. That fixed-exchange rate shelters the Cayman dollar from unpredictable price swings that could negatively affect its economy.

It also makes it easy for me to forecast my expenses for the week. But that kind of currency stability is an anomaly in many emerging markets right now. For countries with floating rate currencies, inflation has been wreaking havoc.

In India, onion prices recently jumped 300%. In Brazil, the CPI (consumer price index) topped the highest estimates in 2013. In Turkey, key lending rates were raised from 7.75% to 12% to defend the value of the lira. In Argentina, inflation recently spiked to 25%.

Naturally, investors want to know if these signals are transitory or the beginning of a larger issue.

Opinions on the Street are mixed.

Here's what I think...

In the short run, I expect emerging markets to remain under pressure due to fear over inflation. How long? A few months at most. But heading into spring and summer -- and in the long run -- I view inflation as a positive for emerging markets.

That may seem counterintuitive. But here's what the market is discounting: Emerging markets are rich in natural resources. Brazil is a global leader in chicken, beef, soybeans and oil. And Chile is the world's largest copper producer. South Africa is a leader in gold and minerals.

With rising prices already popping up in emerging markets, it's only a matter of time before inflation shows up in commodities. Particularly food and energy.

Higher commodity prices will function as a wealth transfer mechanism to emerging markets providing the building blocks for global economic growth.

That relationship between commodity prices and emerging markets is already well-documented. Check out the correlation between iShares MSCI Emerging Markets (NYSE: EEM) and PowerShares DB Commodity Index (NYSE: DBC). The two markets are trading close to a record spread right now after emerging market stocks fell more than commodities in the last few months.



Rising commodity prices aren't good for economic growth. But their bigger impact is on GDP growth in emerging markets. An upward move in commodity prices would be a big boost for emerging markets.

I also believe emerging markets will benefit from their already compelling valuations. As you can see from the chart above, emerging markets have been trading sideways for the last three years. But what investors have failed to realize is that while they haven't had tremendous stock returns, these emerging market economies have been expanding much faster than developed countries.

That misunderstanding has the MSCI Emerging Markets Index trading at just 11 times earnings. Not only is that a massive 40% discount to the MSCI World Index, it's the widest gap since the financial crisis of 2008 and a 10-year low.

There's no question emerging markets are going through some tough growing pains right now. But I think rising commodity costs and the group's multi-year low valuation will attract new capital and support a reversal heading into spring and summer. I will continue to watch this sector closely for the best opportunities to share with readers of my premium advisory, High-Yield International, in the coming months.

The simple fact remains that when you start looking abroad, high-quality stocks paying 6%, 8% and even 14% dividend yields aren't nearly as rare as you might think. I've written about several of these international high yielders in recent essays.

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