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Emerging-market assets set for weekly drop

Seoul - Emerging-market currencies and stocks headed for weekly declines on concern Federal Reserve Chair Janet Yellen will signal in a speech Friday the central bank is still considering raising interest rates this year.

Seventeen of the 24 developing-nation currencies have fallen since August 19 as the prospect of rising US rates sapped demand for higher-yielding assets. The rand headed for the biggest weekly drop since February after President Jacob Zuma’s support failed to allay investor concern Finance Minister Pravin Gordhan will be replaced.

The Fed, Bank of Japan and European Central Bank will all hold policy meetings in September. Emerging-market stocks were set for the biggest weekly loss in more than a month.

“Given the event risk tonight from Yellen’s speech, it’s normal to have some profit-taking,” said Roy Teo, a senior currency strategist at ABN Amro Bank in Singapore. “The volatility is shooting higher as we have quite a number of key events over the next month, not only tonight’s speech but we also have the ECB, the BOJ and the Fed meeting.”

The MSCI Emerging Markets Currency Index has dropped 0.% this week as of 08:03. The JP Morgan Emerging Market Volatility Index climbed to the highest level since July 1 on Wednesday, and is set for its biggest monthly increase since September.

The rand has tumbled 4.7% this week, the Colombian peso dropped 1.4% and the Russian rouble slid 1.2%. South Korea’s won was the best performer, strengthening 0.4%.

‘Very nervous’

“Investors are very nervous ahead of the Fed Chair Yellen’s speech because signals from other Fed officials remain very unclear,” said Warut Siwasariyanon, head of research at Asia Wealth Securities in Bangkok.

“The possible increase in US interest rate will definitely take some air out of the rally in equities and bonds of emerging markets.”

The Philippine peso headed for a fifth week of gains as better-than-forecast economic data and the government’s pro-growth policies boosted investor optimism. It has climbed 0.2% since August 19. Overseas funds have increased their holdings of the nation’s stocks by $1.1bn this year.

The MSCI Emerging Markets Index slid 1.2% since August 19, halting a six-week advance. The gauge is still up 2.9% this month, compared with a 0.3% advance for the MSCI World Index.

Eight of 10 industry groups in the developing nations’ measure gained on Friday, led by consumer stable and utility stocks. China Mengniu Dairy jumped 4%, after touching an 11-month high in Hong Kong after JPMorgan and Credit Suisse Group AG upgraded their ratings for the stock.

Shanghai pares loss

The Shanghai Composite Index added 0.4% on Friday, paring its weekly loss to 0.9%. Industrial and energy companies led losses during the week as railway shares slumped and US oil declined more than 2%.

Shanghai, Beijing and Tianjin are all contemplating measures to cool surging home prices, according to people familiar with the matter, while China’s 10-year government bonds headed for a weekly drop on signs policy makers are looking to curb leverage in the debt market.

Vietnam’s Index climbed 1.2% to a five-week high on Friday, set for a 0.6% gain since August 19. Equity gauges in Indonesia, South Korea and the Philippines dropped at least 0.2% on the day.

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