LONDON, June 14 (Reuters) - Emerging stocks recovered some ground on Friday but were still headed towards their fifth straight week of losses on worries the U.S. Federal Reserve will cut off the liquidity pipeline to higher-yielding assets.
Stocks rose more than 1 percent, recouping some of the previous day’s losses to 11-month lows, after stronger-than-expected U.S. retail sales data lifted the outlook for the world’s largest economy.
Turkish stocks rose 2 percent, adding to the previous day’s rally after weeks of losses following anti-government protests, and the lira hit its highest since before a crackdown on protesters at the end of May.
Emerging market assets have slumped in recent weeks after comments from the Federal Reserve raised expectations the U.S. central bank will scale back on quantitative easing.
But investors say the longer term outlook for a more prosperous U.S. economy - as reflected in the retail sales data - and weaker currencies against the resurgent dollar should buoy emerging market exports.
Profit-taking was also setting in after emerging stocks slid 11 percent in five weeks and sovereign debt spreads widened around 50 basis points. Markets are focusing on next week’s Fed meeting, which could provide clarity on when it will scale back its bond-buying plan.
“The good news is that the brutality of the price moves has pushed emerging market assets back into line - and in some cases cheapened them - relative to their normal relationship with developed market counterparts,” said analysts at Goldman Sachs in a client note.
“The most likely near-term catalyst for that stabilization comes from next week’s FOMC (Federal Open Market Committee).”
The benchmark emerging stocks index rose 1 percent and has rallied 2 percent from 11-month lows set early on Thursday but is still down more than 9 percent on the year and 2 percent on the week.
Emerging sovereign debt spreads edged out by 1 basis point to 335 bps over U.S. Treasuries after tightening sharply on Thursday from their widest levels in a year. Outflows from emerging market debt funds totalled $2.5 billion last week.
Turkish stocks gapped higher from Thursday’s close and have gained 3 percent from eight-month lows hit last week.
Turkish protesters said on Friday Prime Minister Tayyip Erdogan had pledged to hold off on plans to redevelop an Istanbul park until a court ruled on the project, a move they said was a positive sign after two weeks of protest.
The lira edged up 0.25 percent, and has been helped by central bank action to stabilise Turkey’s markets. Turkish five-year credit default swaps fell.
Emerging European currencies were broadly stronger. The zloty and the forint hit their highest this month against the euro, while the rouble hit this month’s highs against the dollar. The Indian rupee inched further from record lows set this week.