February 21, 2020 / 9:42 AM / in 2 months

EMERGING MARKETS-Virus-hit EM assets set to end week in the red

* EM currencies index set for worst week in nearly 7 months

* China reports uptick in new cases on Friday

* Rising conflict in Syria keeps Turkish lira pinned

By Shreyashi Sanyal

Feb 21 (Reuters) - Stocks and currencies in developing economies were set to end the week lower on Friday, as investors avoided riskier assets on fears about the global economic impact of the coronavirus outbreak after China reported a spike in new cases.

More than 200 people tested positive for the disease in two prisons outside of Hubei province, the epicentre of the outbreak. The epidemic is also on the agenda of the Group of 20 summit in Saudi Arabia over the weekend.

MSCI’s index for emerging market currencies fell 0.4% and was on track for its worst weekly performance since early August, while its index for equities was set to log its first weekly drop in three weeks.

“I don’t see a move into EM currencies until we get past this entire catastrophe around the coronavirus. Everyone will stay defensive because the fear of the unknown is going to drive the moves,” said Stephen Innes, Asia Pacific market strategist at AxiTrader.

Investors through the week have grown increasingly anxious about the virus’ impact on global economic growth, narrowing their exposure to riskier assets to flee to the safety of gold and the U.S. dollar.

The dollar touched a three year-year high against a basket of currencies, while prices of gold hit their highest level in seven years.

“Coronavirus and structurally low exchange rate volatility at the same time... makes the U.S. dollar the big winner,” said Ulrich Leuchtmann, head of FX and commodity research at Commerzbank.

“This is because other high-interest currencies would suffer from the global real economic effects of permanent economic corona damage.”

The Turkish lira weakened further as rising conflict in neighbouring Syria continued to unsettle investors. The lira has lost 2.6% of its value in 2020, after a 36% depreciation in the last two years after a currency crisis in 2018.

Syria-related jitters increased after Turkish forces and Syrian rebels fought government troops in northwest Syria on Thursday and Russian warplanes struck back in an escalation of the fighting there.

Russia’s rouble slipped against the dollar, also hurt by a drop in oil prices. Currencies in Hungary, Poland and Romania eased against the euro.

For GRAPHIC on emerging market FX performance in 2020, see tmsnrt.rs/2egbfVh For GRAPHIC on MSCI emerging index performance in 2020, see tmsnrt.rs/2OusNdX

For TOP NEWS across emerging markets

For CENTRAL EUROPE market report, see

For TURKISH market report, see

For RUSSIAN market report, see (Reporting by Shreyashi Sanyal in Bengaluru; Editing by Toby Chopra)

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