EMERGING MARKETS-Stocks on course for best week in more than a year

In China, the blue-chip index jumped 3.3%, taking weekly gains to 6.4% - its best since 2020 - as markets took heart from unverified social media posts flagging an aim to relax COVID rules in March, as well as a report that initial U.S. inspections of audit papers at U.S.-listed Chinese companies had finished ahead of time. MSCI's index of emerging market shares, down 29% this year, was on course to gain 3.8% on the week, with bourses from South Africa to Hungary, all in the black on Friday.

Emerging market shares jumped 2% on Friday and were on course for their best weekly performance in more than a year, thanks to a surge in China shares this week on optimism around lifting of COVID restrictions.

Currencies of emerging markets also rose, up 0.4% as the dollar retreated after a rally driven by a hawkish U.S. Federal Reserve and safe-haven demand as investors worried about a global recession. In China, the blue-chip index jumped 3.3%, taking weekly gains to 6.4% - its best since 2020 - as markets took heart from unverified social media posts flagging an aim to relax COVID rules in March, as well as a report that initial U.S. inspections of audit papers at U.S.-listed Chinese companies had finished ahead of time.

MSCI's index of emerging market shares, down 29% this year, was on course to gain 3.8% on the week, with bourses from South Africa to Hungary, all in the black on Friday. Hong Kong's benchmark, which boasts heavyweights such as Tencent, Alibaba, Meituan and Baidu, rose 5.4%, ending the week up 8.7% for its sharpest weekly gain in 11 years.

But that is a small consolation over the near 30% annual drop, putting it on course for the worst year since 2008. Worries about China's growth amid its zero-COVID policy, and global monetary policy tightening to stave off inflation exacerbated by the Russia-Ukraine war, have roiled markets this year, leaving little room for sustained risk appetite.

Eyes now are on a U.S. payrolls report later in the day where any upside surprise will likely reinforce the Fed's hawkish outlook. After the USD's significant gains in the past few days, it will be difficult for it to climb further, said You-Na Park-Heger, FX and EM analyst at Commerzbank.

"The labour market report would therefore probably have to be a very clear positive surprise to push the USD even higher," she said, signalling riskier currencies may be able to hold on to session gains should data not surprise too much to the upside. Among currencies, South Africa's rand, the Turkish lira, and onshore Chinese yuan were all on track for weekly losses.

In contrast, central European currencies were all set to enjoy weekly gains versus the euro, with the Czech crown helped by the local central bank's pledge to keep interventions going. In fixed income, EM hard currency debt spreads were down on the day and down 16 basis points on the week. 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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