Tremors from higher U.S. real yields knocked nearly 3% from emerging market stocks on Friday, setting the benchmark index for its biggest weekly fall since March 2020, while South Africa’s rand gained 1% due to a recovery rally.
Asian bourses fell sharply, with Taiwan, Hong Kong and India shedding more than 3%. Heavyweights South Korea and Mainland China stocks were not far behind.
Turkish stocks hit a one-month low, while South Africa’s main index slid 2%.
MSCI’s index of EM shares fell to a four-week low, on track to see its sharpest one-day drop in more than nine months and taking weekly losses to almost 6%.
Yields on U.S. 10-year bonds slipped slightly on Friday but hovered near one-year highs hit in the last session.
U.S. Treasuries have become a focal point for global markets after traders aggressively moved to price in earlier monetary tightening than signalled by the U.S. Federal Reserve and peers, with fears of rising inflation also playing in.
But Barclays interprets the rise in U.S. Treasury and real yields as being benign for EM assets, as it appears to reflect optimism about growth and the effects of a larger U.S. fiscal stimulus.
A rise in cross-market volatility could weigh on flows into EM fixed-income funds but, “on balance, we think that any correction is more likely to be bought into, rather than accelerate into a prolonged and deep sell-off of EM assets at this stage,” analysts at Barclays said.
BofA’s weekly fund flow data showed emerging markets enjoyed record inflows of $11.6 bln into debt and equity in the week to Wednesday.
As Asian units fell against the dollar, an index of developing world currencies weakened 0.4%, looking set to post its worst session in almost one year.
South Africa’s rand, however, jumped as much as 1.2% after a near 4% plunge on Thursday which pulled the currency in to the red for the year.
It had hit briefly hit 13-month highs on Wednesday after Finance Minster Tito Mboweni’s budget speech showed a slightly faster economic rebound.
A 0.6% rise in Russia’s rouble also helped limit losses on the EM index.
Turkey’s lira steadied after sliding 2% in early trade. Concerns about federal policy have weighed on the currency this week after the government defended former finance minister Berat Albayrak’s policies under whom the currency depreciated sharply.
Meanwhile, Turkey’s foreign trade deficit narrowed 32.8% year-on-year in January to $3.034 billion, official data showed on Friday.
(Reporting by Susan Mathew in Bengaluru and Karin Strohecker in London; editing by Uttaresh.V)