LONDON, Aug 23 (Reuters) - Emerging assets steadied on Friday towards the end of a week of heavy selling as U.S. Treasury yields stabilised, but equities and most currencies headed nevertheless for their biggest weekly loss in many months.
U.S. 10-year yields steadied just off two-year highs, having risen in recent weeks on expectation that the Federal Reserve could wind back stimulus that had helped pump up developing markets.
Although a raft of upbeat data from major economies has helped drive the rise in yields, analysts said the mood in emerging markets could ultimately be lifted by a better global economic performance.
“Emerging markets are heavily indexed into the behaviour of the U.S. bond yield which seems to have stabilised a bit,” said John Lomax, head of emerging equity strategy at HSBC.
“All the markets with current account deficits have sold off aggressively and almost disproportionately but a bit of rally in the 10-year Treasury and some successful currency intervention or rate rises in these countries could lead to a bit of a relief rally,” he added.
Brazil unveiled an extraordinary $60 billion currency intervention plan to lift the real off near 5-year lows and the move also helped steady losses on other currencies.
The Turkish central bank on Thursday said it would apply more monetary tightening and boost forex-selling auctions.
The Indian rupee and Turkish lira stayed off the previous session’s record lows and non-deliverable forwards in fact showed some investors were becoming nervous about their short rupee positions, with one-month NDFs at 62 from the current rate of 64.3.
Barclays predicted the rupee could firm to 61 per dollar in coming months as the current account deficit stabilises.
Indonesia’s rupiah however hit new four-year lows but most emerging currencies rose as investors stepped in to buy back beaten-down shares.
Despite the turmoil, Indonesia started a roadshow for a dollar denominated sukuk, or islamic bond, that some market players estimate could be as big as $2.5 billion.
The main emerging equity index rose 0.7 percent, snapping its six-day losing streak but it has lost more than 3 percent so far this week. Korean, Indian and Turkish stocks rose between 0.6-1.0 percent.
Oil prices traded above $110 a barrel thanks to the upbeat data, providing a boost to Russian stocks and also the rouble which stabilised off recent four-year lows versus its euro-dollar basket
Emerging markets continue to see outflows however, with data showing that over $3 billion fled sector funds in the past week
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