EMERGING MARKETS-Stocks set for fourth straight week of losses; Turkey in focus

By Sudeshna Ghoshal and Johann M Cherian

Oct 23(Reuters) - MSCI's emerging market stocks index was subdued on Friday, wrapping up a week marked by jitters over the outlook for AI and escalating tensions in the Middle East, while Turkish stocks fell as investors weighed legislation governing fund liquidation.

MSCI's benchmarks for emerging market stocks .MSCIEF and currencies .MIEM00000CUS were flat, with the equities gauge on track for its fourth straight week of losses, its longest streak since March. Chinese stocks .CSI300 logged their longest weekly losing streak on record.

Concern about AI spending increasingly relying on debt was a major overhang on global markets this week, alongside energy price inflation flaring up as Houthi attacks in Saudi Arabia pushed crude prices to five-month highs.

On Friday, currencies of net oil importers such as India dipped 0.1%, Philippines declined 0.2% and South Africa shed 0.3%.

Higher energy costs have also complicated the work of central banks and governments that are trying to balance monetary policy along with fiscal consolidation and economic growth.

The new government in Hungary for instance presented a budget deficit target of 4.9% for next year and 2.8% by 2030 earlier in the week, as it also seeks to adopt the euro. Although some analysts said it lacked clarity on the plans for fiscal consolidation. The forint weakened for the fourth straight day, last down 0.7%.

"A big chunk of the savings are coming from spending cuts that are not very well defined. So this is where the market would like to have had more clarity," said Tilmann Kolb, EM strategist at UBS Global Wealth Management.

In the Czech Republic, a country with relatively lower budget deficits and debt levels, lower house lawmakers supported widening the deficit for the 2027 budget, in favour of spending on state wages, roads, healthcare and defence. The crown dipped 0.2%.

On the flip side, in South Africa, the mid-term budget review earlier this week showed some signs of fiscal consolidation, with the annual deficit now projected at 3.9% of gross domestic product, slightly below the 4.0% forecast in February.

"We've seen over years now, repeated shocks to the world economy, to energy markets — that makes fiscal consolidation more difficult," Kolb said.

TURKISH STOCKS SLIDE

Turkey approved legislation governing the liquidation of frozen investment funds, but the law leaves uncertainty over compensation for many investors whose savings have been locked up for more than a month.

The scandal sent stocks in the country sharply lower through September and also drew warnings about a potential downgrade by MSCI. On Friday the benchmark index .XU100 and banks .XBANK lost 2.4% each.

Meanwhile, Ukraine's international maturities in 2036 and 2035 gained over 1 cent on the dollar on hopes that separate meetings this week between US special envoy Steve Witkoff, Russia and Kyiv could yield an imminent resolution to the conflict.

Kazakhstan's central bank cut interest rates by 50 basis points, while the Russian central bank is expected to keep its key interest rate on hold at 14% at its board meeting.