The Mideast conflict, now in its seventh day, has hit emerging-market valuations and flipped the script on key drivers of a rally in riskier assets.

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Emerging-market (EM) equities and currencies extended losses after US President Donald Trump ruled out a deal with Iran, erasing a short-lived relief from US data and keeping them on track for their biggest weekly declines since the Covid pandemic.

The MSCI EM currency gauge dropped as much as 0.7% after Trump demanded Iran’s “unconditional surrender,” taking the weekly drop to 2%.

The comparable gauge for EM equities is down 0.7% on the day and more than 7% since the Iran war began. Both are on track for their worst week since March 2020.

JSE FTSE All-Share index lost more than 9%, with the rand down almost 5% over the past week. On Friday evening, the rand was trading at R16.68/$, its worst level since end-2024

Earlier, US data showing employers unexpectedly cut jobs in February provided a mild boost for risk, as it raised doubts about the health of the labor market and bolstered the case for Federal Reserve rate cuts. Nonfarm payrolls decreased 92 000 last month after a strong start to the year, according to Bureau of Labour Statistics data out Friday. The unemployment rate climbed to 4.4%.

“Softer than expected US labor market data is unlikely to provide EM lasting relief as long as oil and gas prices continue to rise with gains fueled by the Iran war,” said Piotr Matys, a senior currency strategist at InTouch Capital Markets Ltd. “If we’re witnessing the beginning of a new global inflationary shock in the making, EMs are at risk of capital outflows.”

The Mideast conflict, now in its seventh day, has hit EM valuations and flipped the script on key drivers of a rally in riskier assets. The war has strengthened the dollar — which slumped last year as investors jumped into EM stocks and bonds to diversify away from the US. It’s also boosting energy costs, with Brent futures climbing above $90 for the first time in two years, and stoking long-dormant price swings.

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“We have trimmed quite a bit of risk in the last few days but will want to get back into long EM positions on hints of stabilization,” Citigroup analysts including Luis Costa wrote in a note.

Hungary’s forint was hardest hit on Friday, dropping another 1.9% against the dollar. While oil importers everywhere have been affected by the the war, Hungary is also in an escalating dispute with Ukraine over an outage in the pipeline that normally transports crude from Russia.

Volatility in emerging-market currencies has surged across the board, with the JPMorgan EM FX volatility index rising above a similar gauge for Group-of-Seven peers this week, following its longest stretch on record below that level.

As volatility soars, monetary authorities have taken actions to defend local currencies, with Turkey spending $12 billion, equal to roughly 15% of its foreign-currency reserves, to keep the lira stable this week. Philippines central bank Governor Eli Remolona Jr. told Bloomberg Television that oil reaching $100 per barrel could force monetary policy tightening, as inflation may breach the central bank’s target range.

A policymaker in Warsaw also told Bloomberg that Poland will likely abstain from interest-rate cuts for as long as the armed conflict in Iran lasts.

Additional reporting by News24.