LONDON: Emerging market assets suffered on Friday after Federal Reserve chief Janet Yellen signalled a US rate hike was on track, with Turkey's lira hitting a record low and other currencies also weakening while stocks were poised for a fourth week of losses.
The dollar reached its highest level in almost 14 years and US bond yields soared amid growing expectations the policies of President-elect Donald Trump could push up inflation. However, Yellen said his victory had done nothing to change Fed plans for a rate rise "relatively soon."
Emerging market equities fell 0.6 percent and were on course for their fourth week of losses.
"The Fed hiking cycle will be more aggressive and persistent than before," said Jakob Christensen, head of emerging markets research at Danske Bank. "So countries with large dollar debt or large external imbalances will be more vulnerable than before, and there will be more pressure on emerging markets."
Currencies struggled against the strong dollar with Turkey's lira down nearly 1 percent to a record low and on track to weaken for the fourth straight week.
"It's a perfect storm they are facing from higher US yields, a stronger dollar and the geopolitical uncertainty, and the big unknown is (President Tayyip) Erdogan - what direction policy will take in Turkey," said Danske Bank's Christensen.
The Mexican peso, a lightning rod for market anxiety over Trump, more than matched the lira's fall. Investors were disappointed the central bank raised rates by only 50 basis points to 5.25 percent on Thursday to stem the sell-off, which saw the currency plunge to record lows after the election. Analysts had hoped the bank would raise rates by 75 bps.
However, the peso was on track to end the week a touch stronger.
Asian currencies fared little better with China's yuan falling to an eight-year low.
The Malaysian ringgit languished at a 10-month trough, with the country's central bank saying the latest steps to support the currency were not capital controls, ahead of its next interest rate decision next Wednesday.
In emerging Europe, currencies stayed near the lows hit last week, with Poland's zloty weakening 0.3 percent against the euro, weighed down by the introduction of a new pension bill raising concerns about fiscal sustainability. Hungary's forint slipped 0.2 percent.
Flow data released on Friday reflected investors' frayed nerves over emerging market assets. They pulled $6.4 billion from dedicated bond funds after the US presidential election, the biggest weekly outflow on record, according to JPMorgan.
Emerging market equity funds also suffered outflows, haemorrhaging $6.2 billion, the most since August 2015, undoing 35 percent of inflows year-to-date.
Investors were also awaiting a ratings review of Hungary from Fitch due later in the day. Moody's will review Bosnia, Serbia and Uganda.
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