London - Emerging equities were set for their first weekly loss in seven on Friday ahead of a key speech by US Fed chair Janet Yellen, while South Africa's rand and bonds remained under pressure after a tumultuous week.
The benchmark emerging market stocks index edged up 0.1 percent in wafer-thin trading but was on course to end the week down 1.2 percent and in the red for the first time since the start of July.
Traders are now awaiting guidance from Federal Reserve chief Yellen, to see if she will match the rate hike hints of some Fed policymakers in the run up to a central bankers' meeting at Jackson Hole, Wyoming, or take a more cautious line.
“The market is getting more confident on a December rate hike but after such a huge rally, we are seeing a bit of positioning indigestion heading into important events such as Jackson Hole today and the G20 and ECB next week,” said Manik Narain, emerging FX strategist at UBS.
“People are booking profits after a strong run and (strains in) South Africa has given them an excuse to do that.”
South African assets sold off sharply this week after Finance Minister Pravin Gordhan, who is popular with investors and businesses, was ordered to report to police in an investigation into the tax department.
President Jacob Zuma said he backs Gordhan but says he is powerless to halt the investigation, signalling that a prolonged tussle may be in prospect.
Markit data showed South Africa's five-year credit default swaps up 13 basis points (bps) from Wednesday's close to 256 bps, the highest level since mid-July.
The South Africa rand firmed 0.2 percent but was on track to end the week 5 percent down and sovereign dollar bonds continued to sell off, with the 2025 issue trading at its lowest level in a month.
Narain said the rand had been looking overbought heading into the week's developments, which appeared to signify a rebellion from the pro-Zuma camp in favour of populist policies.
“This is all happening ahead of the December 3rd S&P (BBB-) rating review,” he added. “The rand is one of the most fundamentally overvalued currencies in EM, so I don't think it's easy to make the case a downgrade is fully priced in.”
The Turkish lira also weakened a touch against the dollar after a car bomb killed at least eight people at a police headquarters in the southeast.
This came a day after Turkey's interior minister accused Kurdish militants the PKK of attacking a convoy carrying the main opposition party leader.
Emerging Europe and Asian stock markets delivered a mixed performance with gains of 0.2 percent in Moscow and 0.4 percent in Hong Kong offset by losses of 0.3 percent in Korea and 0.5 percent in Budapest.
Poland's zloty firmed slightly against the euro and Polish bonds held up, shrugging off a warning from ratings agency Moody's that an escalating constitutional crisis in Poland could affect its credit rating.
Warsaw shares slipped 0.2 percent though, taking their losses for the week to over 1.1 percent, roughly double the eastern European region's average.
Back in Africa, Kenya's biggest bank shares tumbled, with KCB and Equity Bank down 10 percent following the government's move earlier this week to cap the level of interest that banks can charge borrowers.
Brazil's real, one of the EM spectrum's best FX performers of the year, firmed 0.15 percent after the Senate began the trial of the suspended President Dilma Rousseff which is expected to culminate in her removal from office next week.
REUTERS