EM-Stocks enter holiday weekend with little cheer, rand jumps for the week

Emerging market stocks fell on Friday, heading into the holiday weekend on a lacklustre note after strong US economic data firmed views that the Federal Reserve may need to be hawkish for longer, while South Africa’s rand eyed big weekly gains.

The MSCI’s index for EM equities fell over 1%, heading for its second week of declines as global risk-taking waned after US weekly jobless claims data pointed to a still tight labour market, while the US economy rebounded faster than previously estimated in the third quarter.

The readings brought focus back to the Fed, which last Wednesday hiked its policy rate by 50 basis points to a 4.25%-4.50% range, the highest since late 2007.

Much of the year’s moves in financial markets have been dominated by hawkish central bank policy from major economies, hurting many risky assets including those of emerging markets on worries that tighter monetary cycles are here to stay for longer. The MSCI’s index for EM stocks is down 22.5% for the year.

“Global coordinated central bank tightening has yet to fully impact most of the economic readings for the major economies and that should have investors nervous over earnings downgrades and credit risks,” said Edward Moya, senior market analyst at OANDA.

Global equities are down $14 trillion, heading for their second worst year on record, but there have been nearly 300 interest rate hikes and a trio of 10%-plus rallies in that time amid a surge in volatility.

Currencies in the developing world fared better on the day, with South Africa’s rand firming 0.5% against the dollar, eying gains of 2.8% for the week, its highest in six. Johannesburg stocks edged 0.1% higher.

Financial markets in Africa’s most industrialised region got a shot in the arm after President Cyril Ramaphosa’s re-election as leader of the country’s ruling party.

The Russian rouble extended a slight recovery in the previous session, on some support from a month-end tax period amid fears over oil and gas sanctions unnerved markets.

Turkey’s lira weakened to a fresh record low of 18.7 against the dollar, extending its losses this year to 40%, even as Ankara pushes on with policies to tightly control the lira’s foreign exchange rate.