EMERGING MARKETS-Stocks set for worst day in over 3 weeks on second virus wave fears

* MSCI EM stocks index down around 2%

* Oil prices fall, taking Russia’s rouble with them

* South African assets underperform peers for the day

By Ambar Warrick

June 15 (Reuters) – Emerging market stocks were headed for their worst day in more than three weeks on Monday, due to concerns over a second wave of coronavirus infections and subdued industrial data from China.

The MSCI’s index of developing world stocks fell around 2%, extending losses from the prior week and on track for its worst session since May 22, while currencies retreated 0.4% as the dollar benefited from safe-haven demand.

A fresh COVID-19 outbreak in Beijing and rising cases in the United States hurt optimism over a smooth reopening of major economies, while weaker-than-expected industrial output data from China continued to highlight the outbreak’s economic damage.

Emerging market stocks had rallied to three-month highs earlier in the month, as monetary and fiscal stimulus from around the globe inspired some confidence in risk assets.

But sobering comments from the U.S. Federal Reserve last week saw markets reassessing a bulk of the recent optimism that had been priced into risk assets, dragging equities down globally.

“The rally, driven by monetary and fiscal stimulus, suddenly appeared on shaky grounds as if investors realised they can no longer be detached much further from economic fundamentals,” Hussein Sayed, chief Market Strategist at FXTM, wrote in a note.

“The resurgence of coronavirus cases in Beijing, parts of the U.S. and Japan as economies further release their lockdowns is sparking fears of a second wave, and without a vaccine in hand, the second wave could be more threatening than the first.”

South African assets lagged their peers, with stocks shedding nearly 3%, while the rand falling about 1.3% to the dollar.

The rand is one of the worst performing developing world currencies so far this year, down nearly 24%. It had led the sell-off last week, marking its worst day in 2-1/2 years on Thursday.

Oil prices retreated as the second wave of infections brought with it the possibility of fresh lockdowns, pointing to weaker demand.

Russia’s rouble fell more than 1%, with stocks falling about 1.7%.

Turkey’s lira dropped nearly 0.4%. Data on Friday showed that the outbreak was extracting a heavy toll on the Turkish economy, although analysts said the worst had likely passed.

Central European currencies, such as the Hungarian forint and the Polish zloty, retreated slightly to 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

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