Emerging stocks post first weekly drop since July on Fed timing

Bloomberg

Caution rippled through emerging markets on Friday as traders weighed the impact on risk assets from comments by Federal Reserve policy makers about the timing of an interest-rate increase in the U.S.
Assets from developing-nation currencies to global stocks gyrated after Fed Chair Janet Yellen spoke to central bankers and economists in Jackson Hole, Wyoming. While she didn’t discuss the specific timing of a rate move in her first public comments since June, Vice Chairman Stanley Fischer said her remarks leave open the possibility of an interest-rate hike in September. Lifting borrowing costs in the world’s largest economy could spur outflows from developing markets which have benefited from investors seeking higher yields.
The MSCI Emerging Markets Index rose 0.4 percent to 901.39 on Friday, after falling as much as 0.4 percent earlier. The equity advance trimmed a weekly decline of 1 percent, its first since the beginning of July. A benchmark of currencies added 0.3 percent to limit a five-day retreat after also erasing an earlier drop .

Volatile Trading
Stocks and foreign-exchange rates initially rallied as investors focused on Yellen’s speech and its lack of details regarding the timing of a rate move in her first public comments since June. Emerging-market assets then retreated after Fischer told CNBC that her remarks were consistent with the possibility of two hikes this year before the two indexes rebounded at the close of trading. “A rate increase will mean stronger dollar and weaker currencies in emerging markets, which will cloud investor sentiment,” said Bruce McCain, who helps oversee $35 billion as chief investment strategist at Key Private Bank in Cleveland. “Emerging markets are pretty heavily dependent on commodity prices, and you see some uncertainty here, and you don’t really see an improvement in economic fundamentals in developing
nations.”
The volatile trading on Friday echoed the uncertainty investors have faced this week ahead of the Fed’s meeting and as political risks from Brazil to South Africa increased.