Most emerging market currencies were mostly weak against the dollar on Friday, but stocks continued to fall, potentially marking the biggest weekly decline for both assets in more than two months.
The MSCI index, which tracks stocks in emerging countries around the world, fell 0.3%, on track to extend its six-week winning streak, the longest in a year. Currency equivalents were flat on the day, but trended downward for the week.
The week was particularly tough for emerging market stocks, as wild swings in precious metals prices and a sell-off in tech stocks triggered a whiplash reaction in tech-exposed emerging markets in Asia and resource-heavy markets in Latin America and South Africa.
“Flows were rotation from tech to other sectors, but the overall market sold in a risk-off sentiment. The obvious question is whether the ongoing events could turn into systemic risk,” said Jefferies economist Mohit Kumar.
“We were in the diversification camp, favoring moving away from U.S. technology and extending the bull market into Europe and emerging markets. Does that change our view? Not much.”
Stock exchanges in South Korea and Hong Kong closed 1.4% and 1.2% lower, respectively, on the day after Amazon.com Inc. predicted a 50% increase in capital spending this year, amplifying concerns about investments in artificial intelligence.
Indonesian stocks were again under pressure, falling 2.1% after Moody’s downgraded the country’s credit rating, citing less predictability in policy decisions.
Indonesia’s five-year credit default swap spread, or the cost of insuring against default, rose to a 15-month high.
Continued volatility in stock prices dampened sentiment across emerging European countries, with Hungarian and Romanian stock exchanges dropping 0.2% and 1.2%, respectively.
Polish stocks recorded their ninth consecutive week of gains. Central bank official Henryk Unorowski said a rate cut in March was highly likely as the central bank was waiting for new inflation forecasts for next month.
South African stocks rose 0.3% as gold prices rose, while Turkish stocks fell 0.5%.
Still, inflows into emerging market stocks resumed this week, reaching $7.8 billion, and outflows from emerging market bonds also resumed, according to BofA’s flow show data.
Asian currencies remained marginally stronger against the dollar, with the Turkish lira depreciating by 0.2%.
The South African rand rose 1%, at one point hitting its highest level in more than two weeks. South Africa signed an Economic Partnership Framework Agreement in China, which it described as a step towards securing duty-free access to the Chinese market.
The currencies of emerging European countries generally weakened against the euro.
Fitch was scheduled to review Czech Republic’s rating later on Friday.
