Emerging stocks shifted into reverse gear yesterday, giving up recent gains while the rouble outperformed, heading for its tenth straight week of gains against the dollar.
MSCI’s emerging stock index slipped 0.7% – its biggest one day fall in more than two weeks - and looked to end the week almost flat.
Bourses across Asia and central Europe as well as South Africa and Turkey sagged after the dollar index touched a one-week high and disappointing earnings from US blue chip companies sapped investors’ risk appetite.
Rising oil prices helped Russia’s rouble gain 1% to just over 66 to the dollar, putting the currency on track to end the week 0.4% stronger.
It has risen 18% since February 19, tracking broad oil price gains.
Oil was headed for its third straight week of gains.
“In the event of stable oil prices nothing is stopping the USD/RUB pair from again testing the 65 mark against the dollar, however consolidation in the range 66-67 is more likely,” Rosbank analysts said in a note.
Yet South Africa’s rand and Turkey’s lira struggled to gain traction, though both were on track for weekly gains.
“There is still some juice for EM currencies in the near term,” said Murat Toprak, FX strategist at HSBC, citing the prospect of the Bank of Japan expanding its quantitative easing programme.
“We have had some ups and downs, but overall we remain positive for the time being,” he added.
South African assets were under pressure from ratings review, with both Standard & Poor’s and Fitch rating the country’s debt one notch above junk and possible downgrades imminent by mid-year as the country struggles to boost growth.
The central bank’s deputy governor said he was worried about the effect the reviews could have on investor sentiment.
 Currencies across central and eastern Europe also slipped against the euro, with Poland’s zloty drifting 0.2% lower to its weakest in 6 weeks, and Hungary’s forint almost matching that fall.
Serbia’s dinar traded unchanged ahead of Sunday’s general election with the ruling coalition expected to win four more years in power.
Meanwhile, Zambia’s government said early yesterday it had agreed targets with the International Monetary Fund, preparing the way for a support programme to kick in towards the end of the year.