London - A global flight from emerging market assets gathered pace on Friday, sending the Turkish lira to a record low and setting global shares on course for their worst week this year.
The emerging market rout spread to developed countries in Europe as investors worried about the impact of slower growth in China, US monetary policy and mounting political problems in Turkey, Argentina and Ukraine.
The sell-off raised the spectre of a repeat of the sharp moves last June when a fall of nearly 18 percent in emerging stocks hit global shares.
This came after the Federal Reserve signalled its intention to pare back the bond-buying stimulus that had led investors to chase higher returns in emerging market assets.
“We expect the emerging market sell-off to get worse before it starts getting better,” said Lorne Baring, managing director of B Capital Wealth Management in Geneva.
“There's definitely contagion spreading and it's crossing over from emerging to developed in terms of sentiment.”
European shares tracked Asian stocks lower.
Spain's IBEX index, highly exposed to Latin America, lagged other regional bourses, falling 3 percent.
The Turkish lira hit a new record low of 2.32 to the dollar, even after the central bank spent at least $2 billion trying to prop it up on Thursday.
Turkey's new dollar bond, sold only on Wednesday, fell below the launch price.
The cost of insuring against a Turkish default rose to an 18-month high and Ukraine's debt insurance costs hit their highest since Kiev agreed a rescue deal with Russia in December.
Argentina's peso suffered its steepest daily decline since the country's 2002 financial crisis, as the central bank gave up its fight against the unit's decline.
In the last week, investors withdrew some $2.5 billion from emerging stocks.
Investments in Latin American alone dropped by $398 million, or 1 percent, analysts said, citing EPFR data.
“I think you've got a bit further to go in terms of outflows from emerging markets,” Mark Tinker, head of AXA Framlington Asia, said.
An MSCI index of emerging market shares was down 1.3 percent, taking its weekly loss to 4.8 percent, its steepest since early November.
The broader MSCI world equity index was down 0.4 percent, taking its losses for the week to 0.8 percent, its worst since mid-December.
The US dollar steadied after slipping 0.9 percent against a basket of major currencies, including the euro, yen, Swiss franc and sterling, on Thursday.
That was its worst one-day performance in three months.
“When investors avoid risk, they buy currencies backed by a current account surplus,” said Sho Aoyama, senior market analyst at Mizuho Securities in Tokyo.
US stock futures suggested a sell-off on Wall Street had further to go on Friday.
March contracts on the S&P 500 were down 0.8 percent.
On Thursday, the Standard & Poor's 500 fell 0.9 percent and the Dow Jones industrial average 1.1 percent to record its third consecutive day of losses.
A flight to safety lifted currencies backed by a current account surplus, such as the Japanese yen, and highly rated government bonds, pushing up German Bund futures and sending 10-year US Treasury yields to an eight-week low.
Germany's Bund future, the benchmark of the euro zone government bond market, rose 83 ticks up on the day at 142.87.
Gold was trading close its highest in nine weeks and poised for a fifth straight weekly climb as weaker equities burnished its safe-haven appeal. - Reuters