Risky assets in the developing world slipped on Friday, with crisis in the Middle East taking centre stage after a US air strike killed a top Iranian commander.
Iranian Major-General Qassem Soleimani, head of the elite Quds Force, died in a strike on Baghdad airport, prompting Iran’s Supreme Leader Ayatollah Ali Khamenei to vow harsh revenge.
“This is certainly going to be the main driver for the next day or two. All hinges are now on how Iran responds. There is obviously a concern that this could call for confrontation in the region,” said Jason Tuvey, senior emerging markets economist at Capital Economics in London.
MSCI’s index for emerging markets stocks dropped 0.2% while developing market currencies fell 0.3%.
A cooling in trade tensions between the United States and China had helped shore up demand for riskier emerging market assets, and the equity index was still hovering near 19-month highs and poised to register its fifth straight week in the black.
The air strike also sent crude prices up more than 3%, pushing up Russian stocks, which are sensitive to oil price movements. Oil giant Gazprom led the advance.
Among currencies, South Africa’s rand was 1.2% weaker at 14.2858 to the dollar, its softest level since December 23.
Turkey’s lira came under pressure after data showed annual inflation rose slightly more than expected in December, likely leaving the door open to more monetary easing.
Turkish inflation readings typically came in lower than expected last year, encouraging the central bank to slash its key policy rate in July.
“We expect inflation to rise more this year and the lira will come under further downward pressure,” Capital Economics’ Tuvey said.
In Asia, China stocks ended Friday lower but finished the first week of the new decade higher as Beijing eased monetary policy to support the economy even as investors cheered a thaw in Sino-US trade tensions.