By Claire Milhench
LONDON, June 8 (Reuters) - Emerging market stocks tumbled on Friday as investors shied away from risky assets amid simmering trade tensions ahead of a G7 meeting, while South Africa's rand fell to a near six-month low.
The growing rift between the United States and its major trading partners has soured market sentiment going into a Group of Seven summit on Friday and Saturday.
U.S. President Donald Trump has already imposed hefty tariffs on steel and aluminium imports and told China to cut its massive trade surplus with the United States. widened to $24.58 billion in May, with solid Chinese export growth of 12.6 percent overall. The U.S. and China have threatened tit-for-tat tariffs on goods worth up to $150 billion each.
Per Hammarlund, chief emerging markets strategist at SEB, said the likelihood of there being at least one round of tariffs was weighing on investor sentiment: "If they can stop at one round it won't have a major impact but if it escalates beyond that it will be a headwind for China and global growth and emerging markets in general."
MSCI's benchmark emerging stocks index fell 1.5 percent .MSCIEF and was set for its worst day in three weeks, but still on track to end the week in the black.
The biggest losers included Hong Kong .HSI , down 1.8 percent, while Chinese mainland stocks .CSI300 fell 1.3 percent to a one-week low. Concerns about the listing of big cap "unicorns" also weighed on the market. emerging Europe, Turkish stocks .XU100 tumbled 1.8 percent and looked set to end the week down over 2 percent, Hungary shares lost 1.5 percent .BUX and Polish stocks .WIG20 1 percent.
Turkish bank stocks .XBANK fell over 2 percent after rating agency Moody's slashed its ratings on 17 Turkish lenders, voicing caution about the rising cost of their foreign currency funding. currencies came in for a pounding as the dollar index .DXY strengthened 0.25 percent in the wake of a U.S. jobless report that pointed to further tightening in labour market conditions.
This cemented expectations the U.S. Federal Reserve will raise benchmark U.S. rates next week and twice again later in the year. Africa's rand plunged 1.5 percent ZAR=D3 to its lowest since mid-December, and was down over 4 percent for the week. The yield for the benchmark 2026 government bond ZAR186= rose 18.5 basis points to 9.015 percent.
The Turkish lira TRY= also fell 1.1 percent after gaining 1.5 percent in the previous session when the central bank raised rates by 125 basis points (bps) to 17.75 percent, cheering markets. The currency was set to end the week up 2.6 percent.
"The increase was more than markets expected and another strong step to support the currency and safeguard price stability," Muhammet Mercan, ING's chief economist for Turkey, said in a note.
Mexico's peso MXN= weakened 0.6 percent on worries about NAFTA negotiations and was down around 3.3 percent for the week.
But the Brazilian real BRL= was 0.1 percent firmer, edging off a more than two-year low hit on Thursday amid concerns over the country's fiscal outlook and uncertainty surrounding October's wide-open presidential election. It looked set to end the week down around 3.6 percent. Argentina clinched a three-year $50 billion financing deal with the International Monetary Fund to provide a safety net. The average yield spread paid by Argentine sovereign dollar bonds over U.S. Treasuries on the JPMorgan (NYSE: JPM ) EMBI Global index narrowed by 2 basis points (bps) to 476 bps.
Stuart Culverhouse, chief economist and head of fixed income research at Exotix Capital, said the size of the deal was at the upper end of market expectations.
"The agreement shows there is the lot of international support to make Macri's Argentina work, and it should ease financing and political concerns this year. But delivering the fiscal adjustment and lower inflation next year, an election year could still prove challenging," he said.
For TURKISH market report, see .IS
For RUSSIAN market report, see RU/RUB ) Emerging Markets Prices from Reuters
Net Chg % Chg % Chg
Morgan Stanley (NYSE: MS )
Emrg Mkt Indx .MSCIEF 1132.36 -17.32 -1.51 -2.25
-2.22 -0.21 -0.19
2250.74 -20.01 -0.88 -8.55
36842.69 -558.56 -1.49 -6.44
8199.86 -84.72 -1.02 +5.75
765.14 -13.48 -1.73 -4.64
1159.46 -11.76 -1.00 +0.44
.JTOPI 51721.83 -315.86 -0.61 -1.54
.XU100 96920.44 -1703.21 -1.73 -15.96
3067.13 -42.37 -1.36 -7.26
.BSESN 35374.51 -88.57 -0.25 +3.87
close currency currency
% change % change
South Africa ZAR=
4.48 -1.09 -16.41
3.91 +0.11 -15.12
Index Strip Spd Chg %Rtn Index
Sov'gn Debt 11EML EMBIG 366
.14 7 68.80 1
All data taken from Reuters at 09:09 GMT.
Currency percent change calculated from the daily U.S.
close at 2130 GMT.
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