By Bansari Mayur Kamdar
Feb 10 (Reuters) – Emerging market stocks that have rallied since the start of the year fell on Friday, and were on track for their second weekly loss as rate-hike jitters, rising Sino-U.S. tensions and waning bets of a recovery in China dampened risk appetite.
The MSCI’s index for emerging market stocks .MSCIEF fell 0.9% by 0905 GMT, and was set for losses of over 2% this week, as Chinese shares failed to resume their rally since the Lunar New Year reopening last week.
Hong Kong’s tech-heavy Hang Seng index .HSI closed 2% lower while China’s blue-chip CSI300 .CSI300 ended 0.6% weaker, dragged down by growing Sino-U.S. tensions after a Chinese spy balloon was spotted in the U.S. airspace last week.
Data showing China’s January factory gate prices fell more than expected further stymied the stocks, suggesting that domestic demand that had stoked consumer prices after the zero-COVID policy ended are not yet strong enough to rekindle upstream sectors.
Pulling down sentiment, media reports said the Joe Biden administration is poised to introduce new restrictions on U.S. companies funding the development of advanced computing technologies in China.
Global investors are reducing their holdings of Chinese government bonds, as they prepare for some monetary tightening in China and eye juicier stock markets in the reopened economy.
Emerging market currencies .MIEM00000CUS slipped 0.2% and were headed for a weekly loss of 1%.
“There’s still pressure there from U.S. rates and that’s been the dominant story of the past week,” said Simon Harvey, head of FX analysis at Monex Europe.
“We have higher U.S. Treasury yields or U.S. interest rates to play with and that just means the combination of higher financing costs and increased market volatility makes carry trade just look less attractive than they were say a week ago.”
Hungary’s forint EURHUF= and the Czech crown EURCZK= slipped 0.1% against the euro, after data showed headline inflation in the central European countries rose to new peaks, exceeding expectations in January and signalling persistent price pressures.
The Russian rouble RUBUTSTN=MCX firmed to 72.54 against the greenback ahead of a central bank meeting that is expected to keep interest rates on hold but signal potential future monetary policy tightening.
Market demand for foreign currency has driven the rouble sharply lower this week, with the Russian currency hitting its lowest level in more than nine months in the previous session.
South Africa’s rand ZAR= slipped 0.1% after President Cyril Ramaphosa’s declaration of a “state of disaster” to tackle crippling power shortages in the country failed to elicit investor confidence.
Elsewhere in emerging markets, Indian shares fell on fears of a looming U.S. recession, and as sentiment soured after index provider MSCI said it will cut the weightings of four Adani Group companies.
Pakistan and the International Monetary Fund said they were still discussing a deal to provide the South Asian nation with $1.1 billion in funds critical to keeping its economy afloat.
(Reporting by Bansari Mayur Kamdar in Bengaluru; Editing by Sherry Jacob-Phillips)
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