LONDON: Emerging markets stocks retreated to a near 11-month low on Friday and were set for their worst week in nine as investors turned risk-averse amid higher-for-longer interest rates and escalating Middle East tensions.
MSCI's index for emerging markets equities fell 0.5 per cent and touched levels last seen in late November 2022.
EM stocks and currencies are set for weekly declines, with the former on track for an over 2.5 per cent decline, its worst week since mid-August.
Traders are juggling between pricing in how long the Federal Reserve will keep rates elevated amid a US bond sell-off, while staying on top of developments in the Middle East and the potential repercussions to oil supply.
Oil prices spiked to over $90 a barrel, pressuring broader EM currencies, which were flat against the US dollar by 9:10 GMT.
"The markets first took it quietly, but then as it seemed that the world might face longer geopolitical unrest, there are fears that somehow it would impact the energy market" said Vladimir Miklashevsky, chief analyst at the East Office of Finnish Industries Oy.
"Markets also believe that we are approaching the end of global monetary tightening.... but then uncertainty is rising."
Meanwhile, ratings agency Moody's placed Israel's ratings on review for a possible downgrade, citing the ongoing conflict with Hamas. The shekel slipped 0.2 per cent, ahead of a central bank rate decision next week.
China's yuan was muted after the country's central bank kept its benchmark lending rates unchanged, as expected, as a set of economic data suggested the economy is stabilising.
China Evergrande Group fell 3.7 per cent as the embattled property developer said it was revising the terms of a proposed offshore debt restructuring deal. The broader Hang Seng index closed 0.7 per cent lower. In central and eastern Europe, Hungary's forint led declines among peers, falling 0.2 per cent against the euro.
Hungary's central bank is likely to cut its key rate by 50 basis points next Tuesday to 12.5 per cent a poll showed, slowing the pace of rate cuts.
Elsewhere, the Russian rouble climbed to a more than three-week high against the greenback, supported by high oil prices and the promise of stronger foreign currency supply.
The International Monetary Fund (IMF) said it is looking for a strong budget and narrower deficit from Sri Lanka as it seeks funding to bridge the gap between government revenue and expenditure.
Meanwhile, Asian shares plumbed 11-month lows on Friday as a relentless rise in long-term US yields pressured valuations and investors shied away from risk due to mounting fears that Israel's war on Hamas could spark a wider Middle East conflict. Those fears also drove oil prices higher.
Europe wass set for a similarly downbeat open, with Eurostoxx 50 futures sliding 0.6 per cent and FTSE futures off 0.4 per cent. S&P 500 futures slipped 0.1 per cent while Nasdaq futures were down 0.3 per cent. The surge in the 10-year US benchmark yield overnight to briefly touch 5 per cent has raised borrowing costs around the world. On Friday, the Bank of Japan intervened in the Japanese government bond (JGB) market as the 10-year JGB yield touched a decade high.
Markets reacted choppily to a much-watched speech from Federal Reserve Chair Jerome Powell overnight, although most investors leaned further into bets that the Fed will extend its rate pause in November. - Reuters
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