June 17 (Reuters) – Emerging market stocks were set to end Friday with their biggest weekly declines in more than three months on mounting fears of a global recession as central banks across the world aggressively tighten monetary policy to combat rising inflation.
The MSCI’s index for EM equities fell 0.2%, down 4.6% for the week, its worst performance since March. Emerging market assets have taken a hit from developed world central banks hiking their policy rates, with the US Federal Reserve delivering its largest rate hike in more than a quarter of a century.
This set off worries of tipping the world’s largest economy into a recession, and when combined with renewed COVID lockdowns in China starting to impact its economy the hike sparked a flight out of riskier emerging market assets, as investors turn towards safer bets and become more defensive.
“The more aggressive line by central banks adds to headwinds for both economic growth and equities. The risks of a recession are rising, while achieving a soft landing for the US economy appears increasingly challenging,” Mark Haefele, global wealth management chief investment officer at UBS.
“The expected fall in inflation has been delayed by the surge in energy and food prices resulting from the war in Ukraine, while disruptions arising from the pandemic are also lingering longer than forecast.”
Turkish stocks fell nearly 2% for the week, while South African equities dropped 2.3%, both bourses were set for their second weekly fall.
Emerging market currencies struggled to make headway for much of the week, with the MSCI’s index posting weekly declines of 0.5%. The index is headed for its second week lower.
Turkey’s lira shed 0.2% and was on track to record its ninth straight weekly decline – worst losing streak since a currency crisis in December 2021, which was triggered by unorthodox monetary policy amid sky-high inflation.
The Russian rouble opened lower against the dollar, while South Africa’s rand firmed to 15.91 against the greenback.
(Reporting by Shreyashi Sanyal in Bengaluru, Editing by William Maclean)