EMERGING MARKETS-Pummelled by recession blow, stocks see worst week in 3 months

Turkish stocks fell 1.4% for the week, while South African equities dropped 2.5%, 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 0.6%.

Emerging market stocks were set to end Friday with their biggest weekly declines in more than three months, while other assets posted sharp falls on mounting fears of a global recession as central banks aggressively tighten monetary policy. 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 U.S. Federal Reserve delivering its largest rate hike in more than a quarter of a century to combat inflation.

This set off worries about 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 U.S. 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," J.P.Morgan said weekly emerging market outflows increased substantially to $3.5 billion from $1.5 billion, as hard currency fund outflows touched the highest level since early March, and local currency fund outflows increased in size.

Worries also remained about high levels of credit default swaps in countries like Egypt, Pakistan, Tunisia, Kenya, and Turkey. Turkish stocks fell 1.4% for the week, while South African equities dropped 2.5%, 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 0.6%. 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 - the 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 as much as 15.91 against the greenback. For GRAPHIC on emerging market FX performance in 2022, see http://tmsnrt.rs/2egbfVh For GRAPHIC on MSCI emerging index performance in 2022, see https://tmsnrt.rs/2OusNdX

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