LONDON, Aug 17 (Reuters) - Emerging equities were set for their worst week since February after sliding into bear territory while currencies came under fresh pressure on Friday, with Turkey’s lira taking another tumble despite central bank measures earlier in the week.
MSCI’s benchmark emerging stocks index ended the week on a slightly calmer note, up 0.2 percent, and snapping a seven-day losing streak on tentative optimism that U.S.-Sino relations may improve with the scheduling of the first trade talks since June.
The hope is this will resolve a tariff war that threatens to curb global economic growth at a time when the U.S. Federal Reserve is raising interest rates, creating difficulties for emerging market economies that have high external borrowing requirements.
But emerging stocks were still set for their worst weekly sell off since February, down 3.5 percent, after clocking up their longest run of daily losses since a January-February rout.
Investors rattled by events in China, Turkey and South Africa have pulled $1.3 billion from emerging market stocks in the last week and $100 million from emerging bonds according to the Institute of International Finance, which tracks financial flows.
“Tail risks have increased ... and we are cautious in the short term given the escalation of risks in key EM economies,” said Ewout van Schaick, head of multi-asset at NN Investment Partners.
Chinese mainland shares fell for a fifth straight day, slipping about 1.4 percent as a vaccine scandal clobbered healthcare shares.
Other emerging bourses delivered a mixed performance with Polish shares down 0.7 percent while South Africa stocks leapt 1.3 percent.
Currencies also painted a sombre picture. After three days of gains, Turkey’s lira weakened again, slipping more than 4 percent and crashing again through the sensitive 6 to the dollar level. However, thanks to recent gains the currency was on track for its best weekly performance since the financial crisis in 2008. The lira is still down 37 percent year-to-date.
Investors gave Finance Minister Berat Albayrak the benefit of the doubt after a conference call on Thursday at which he tried to reassure them that Turkey would emerge stronger from the currency crisis.
“He highlighted that the country has a strong track record of crisis management and that the key has been sound fiscal policy and it will be this time also,” said Richard Segal, a strategist at Manulife Asset Management.
However, Washington warned that Turkey should expect more economic sanctions unless it hands over detained American pastor Andrew Brunson.
Turkish longer-dated dollar bonds booked losses, while the credit default swaps curve remains inverted, indicating the level of strain. Turkish stocks fell 1.4 percent, and were down 9.4 percent for the week. S&P Global is scheduled to publish its latest review of Turkey later in the day.
China’s yuan was on course for a record 10th straight week of losses, down 0.5 percent for the week. The currency has lost about 9 percent of its value against the dollar since the end of March. On Thursday, Chinese regulators barred banks from using some interbank accounts to deposit or lend yuan offshore through free trade zone schemes, making it more expensive to short the currency in an attempt to stem the depreciation.
South Africa’s rand weakened 1.4 percent and was on track for a near 6 percent weekly decline, while Russia’s rouble and Mexico’s peso also slipped.
Across central European markets, Hungary’s forint was a touch firmer against the euro, with investors waiting to see if S&P Global will upgrade the country’s sovereign rating after markets close.
Emerging market borrowing costs also continued to climb, with the JPMorgan EMBI hard currency sovereign debt index at 365 basis points, its highest in a week.
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Emerging Markets Prices from Reuters Equities Latest Net Chg % Chg % Chg
Morgan Stanley Emrg Mkt Indx 1025.93 +4.36 +0.43 -11.44
Czech Rep 1062.32 +0.94 +0.09 -1.47
Poland 2240.73 -21.37 -0.94 -8.96
Hungary 36417.66 -55.33 -0.15 -7.52
Romania 8157.68 +29.83 +0.37 +5.21
Greece 721.25 +13.48 +1.90 -10.11
Russia 1067.05 +0.54 +0.05 -7.57
South Africa 51084.50 +578.12 +1.14 -2.76
Turkey 86223.42 -919.79 -1.06 -25.24
China 2669.10 -36.09 -1.33 -19.29
India 37958.21 +294.65 +0.78 +11.46
Currencies Latest Prev Local Local
close currency currency
% change % change
Czech Rep 25.71 25.73 +0.09 -0.71
Poland 4.30 4.30 +0.06 -2.88
Hungary 322.93 323.48 +0.17 -3.84
Romania 4.65 4.65 +0.02 +0.51
Serbia 117.88 117.89 +0.01 +0.44
Russia 66.88 66.82 -0.09 -13.79
Kazakhstan 360.17 360.27 +0.03 -7.60
Ukraine 27.95 27.69 -0.93 +0.70
South Africa 14.69 14.72 +0.18 -15.89
Kenya 100.80 100.70 -0.10 +2.28
Israel 3.66 3.67 +0.10 -5.11
Turkey 5.85 5.82 -0.41 -35.21
China 6.88 6.88 +0.05 -5.37
India 70.14 70.08 -0.09 -9.00
Brazil 3.91 3.91 -0.00 -15.20
Mexico 19.00 18.97 -0.12 +3.43
Debt Index Strip Spd Chg %Rtn Index
Sov’gn Debt EMBIG 390 1 .01 7 68.41 1
Additional reporting by Karin Strohecker; editing by David Stamp