Emerging Market Assets Set for Worst Week Since November

Emerging market assets are heading for their worst week in more than two months, after increasingly volatile markets from commodities to technology stocks roiled investor sentiment.

The MSCI Emerging Markets Index fell as much as 1.5% on Friday before paring losses, while a similar measure tracking currencies was little changed. Both gauges were poised for their steepest weekly drop since November. Indonesian assets were among the biggest laggards after Moody’s Ratings lowered the nation’s credit outlook.

Risk-off sentiment gripped markets amid geopolitical worries, uncertainty over the Federal Reserve’s policy outlook and persistent concerns about high valuations in tech stocks. A relatively weaker dollar had benefited emerging-market assets, supporting inflows and suppressing volatility, but this tailwind appears increasingly fragile, Citigroup Inc. economists including Donato Guarino and Luis Costa said in a note.

“A reversal in the dollar — whether driven by greater US rates volatility, a repricing of Federal Reserve expectations, or a broader risk‑off move — would likely represent an additional headwind for EM flows,” they said.

While chipmaker Taiwan Semiconductor Manufacturing Co. halted a two-day drop on Friday, South Korea’s tech-sensitive market continued to fall, as did stocks in Hong Kong and mainland China.

“After this healthy correction, investors will likely be more selective, but I don’t think the stock rally is over yet,” said Kiyong Seong, a strategist at Societe Generale in Hong Kong. “Industrial and life style change based on AI is a multi year transition, which will support key tech’s earnings going forward.”