ANALYSIS-Rising oil threatens to damage emerging markets

By Peter Apps

LONDON, July 7 (Reuters) - Most emerging economies beyond a handful of crude producers are suffering from record oil and food prices, with Asian markets in general and China's in particular likely to be notable losers.

South Africa and Turkey also stand out as being vulnerable, while Russia and the Gulf States, which should be the main beneficiaries as crude prices soar, will still struggle with high inflation and the risk of economic overheating.

Emerging markets have proved largely "decoupled" from the Western credit crunch but inflation is proving a global problem.

Until late May emerging equities in particular had been doing relatively well, more or less recovering losses earlier in the year when worries over Western banks sparked global risk aversion. Some investors even moved into emerging markets, seeking diversification from a developed world downturn.

"The credit crunch was very much a Western phenomenon," said Mark Hammond, investment director for fund manager Fidelity covering global, U.S. and emerging markets. "Inflation is much more global."

Hedge fund monitor EPFR says fund flows into emerging markets had been broadly positive this year but have now turned negative everywhere except the Middle East and Africa.

Index provider Standard & Poor's says that by their indices emerging equity markets lost 10.07 percent in June, putting them down 12.5 percent so far this year.

Developed markets were also hit, but S&P says they lost slightly less, down 7.90 percent in the year to date.