London - Russian stocks slid as much as 5 percent on Friday and debt insurance costs climbed to their highest in nearly two years, hurting emerging markets across the board, amid fears about the impact of likely Western sanctions on Russia.
US Secretary of State John Kerry meets Russian foreign minister Sergei Lavrov on Friday, before a weekend referendum on whether Crimea should secede from Ukraine and join Russia, which the West says illegal.
European Union officials said on Friday they were working on a list of 120 to 130 names to decide on visa bans and asset freezes against Russia.
Investors worry that sanctions could push Russia's already-slowing economy into recession.
Former Russian finance minister Alexei Kudrin told Russian media this week that sanctions would increase capital flight to $50 billion a quarter.
“Kremlin's ultimate objective doesn't end with Crimea, it is about a higher influence in the political transition in Kiev. This will create further noise for rouble assets,” said Luis Costa, an emerging market strategist at Citi.
The Russia-Ukraine stand-off was affecting the general sentiment towards emerging markets.
The MSCI emerging equities index hit five-week lows and was down 0.7 percent at 13:30 SA time.
That put it on course for a weekly loss of nearly 3.5 percent, its largest since June 2013.
“Investors are on the back foot,” said Thu Lan Nguyen, an emerging FX strategist at Commerzbank in Frankfurt.
“There's no panic, but there is a lot of uncertainty.”
Chinese stocks fell more than 2 percent this week after data indicating a slowdown in the world's largest emerging economy.
Russian stocks dropped 5 percent to their lowest since 2009 before trimming losses to stand around 2.5 percent down on the day.
Five-year credit default swaps rose 18 basis points to 285 bps, their highest since June 2012, according to Markit.
The rouble was steady, close to recent record lows after Russia's central bank kept rates unchanged.
Offshore rouble contracts have been attracting a premium, as investors grow nervous about the functioning of Russian markets.
Ukrainian dollar bonds fell by 1-2 points but were off recent record lows.
The hryvnia weakened beyond 10 per dollar.
Emerging European assets were also hit by regional contagion.
The Polish zloty approached six-week lows against the euro and the MSCI emerging European stock index fell 1.5 percent to its lowest since June.
The Turkish lira slipped lower within recent ranges, following civil unrest this week ahead of local elections.
The Serbian dinar was steady ahead of elections in Serbia on Sunday.
Emerging sovereign debt spreads widened by 1 basis point to 356 bps over US Treasuries.
Emerging bonds saw their first net inflows since September 2013, banks said on Friday, citing data from fund tracker EPFR.
But emerging equities saw outflows for a record 20th week.
“We have very bad headline risks now, including Ukraine, Russia, Venezuela, growth fears in China and elections in many large emerging economies,” said Jorge Mariscal, CIO of emerging markets at UBS Wealth Management.
“This is likely to prevent capital inflows in the short term from picking up significantly.” - Reuters