Equity markets from China to Russia and South Africa plunged as concern that their valuations are too high sent an emerging-markets gauge to its steepest drop in eight weeks.
The Shanghai Composite Index capped its worst three-day performance since June 2013 after Morgan Stanley ended its seven-year bullish call. OAO Sberbank, Russia’s biggest lender, led declines in Moscow. The Johannesburg market dropped to a four-week low. The Ibovespa slumped for a second day as Brazil’s central bank signaled higher borrowing costs. India’s rupee slid 1.1 percent against the dollar as a gauge tracking 20 emerging-market currencies ended a two-day gain.
U.S. stocks fluctuated between gains and losses Wednesday after Federal Reserve Chair Janet Yellen said equity valuations are “quite high.” A global benchmark index is rallying for the fourth year and trades near the highest price in a decade relative to the projected earnings of its members.
“Yellen’s comments did not help,” Joseph Dayan, head of markets at BCS Financial Group in London, said by e-mail. “Russia and China have been key performers this year, so there are plenty of marginal sellers around.”
The MSCI Emerging Markets Index lost 1.5 percent to 1,024.91, posting the biggest drop since March 10. The gauge trades at a price-earnings multiple of 12.3, near the highest since January 2010. It has jumped 7.2 percent this year, the best start since 2012.
Morgan Stanley downgraded Chinese stocks for the first time in more than seven years, saying the market has become expensive after share prices surged. The U.S. bank also cited the weakest corporate profits since 2009.
The Shanghai Composite Index slumped 2.8 percent, extending a three-day loss to 8.2 percent. Hong Kong’s Hang Seng China Enterprises Index fell 1.6 percent, its third day of declines. Evergrande Real Estate Group Ltd. tumbled 8.2 percent after Standard & Poor’s cut its credit rating.
“Corrections in Chinese securities are inevitable and most investors are now taking profit on their rallies as the overall economy remains weak,” Rakpong Chaisuparakul, an investment strategist at KGI Securities (Thailand) Pcl, said by phone from Bangkok. “Yellen’s comment continues to weaken sentiment in global equities.”
Sberbank lost 3.4 percent, pushing the Micex Index down 1.6 percent in Moscow. The dollar-denominated RTS Index of Russian stocks retreated 0.5 percent.
The S&P BSE Sensex Index lost 0.4 percent in Mumbai in the lowest close since Oct. 21. The rupee touched 64.2825 per dollar, the lowest since September 2013.
The Ibovespa slipped 0.3 percent. Vale SA, the world’s largest producer of iron ore, contributed the most the benchmark’s decline, declining 4.2 percent. Brazil needs to do more to bring inflation back to its target, the central bank said Thursday in the minutes of its April 28-29 meeting. Borrowing costs are at at their highest since January 2009 following five straight increases, while Latin America’s biggest economy is forecast to contract the most since 1990.
The FTSE/JSE All Shares Index in Johannesburg slid 1.1 percent, led by BHP Billiton Ltd. and MTN Group Ltd. Some of the biggest companies in South Africa could fall foul of regulations and lose business after the government changed how it scores their compliance with regulations compelling them to give shares to black people.
The premium investors demand to own emerging-market debt over U.S. Treasuries increased six basis point to 332 basis points, according to JPMorgan Chase & Co. indexes.