Emerging-market stocks sank the most in two years and currencies slumped to the weakest level since March as a deepening selloff in China spread across the world.
As the Shanghai Composite Index sank 5.9 percent on Wednesday, markets from Taiwan to Egypt lost 2 percent or more. At least 1,323 companies have halted trading on mainland Chinese exchanges, representing about 40 percent of the market’s capitalization, as traders unwind margin bets at a record pace and concern mounts the government won’t be able to stem declines.
“Panic selling in the largest emerging market is not good for sentiment,” Tony Hann, who manages $350 million as the head of emerging markets at Blackfriars Asset Management Ltd. in London, said by e-mail. “Up to now, a number of people have had strong faith in the ability of the Chinese government to manage a soft landing in the economy. The authorities’ inability to stabilize the market has shaken this faith.”
The rout that’s erased more than $3.5 trillion from the value of Chinese equities in less than a month is choking appetite for riskier assets on concern contagion from the turmoil may threaten global trade and economic growth. U.S. exchange-traded funds that invest in the emerging markets led net outflows with a net $131 million of losses on Tuesday, according to data compiled by Bloomberg.
The MSCI Emerging Markets Index retreated 2.8 percent to 904.57, the lowest level since June 2013. A gauge tracking 20 developing-nation currencies against the dollar weakened 0.3 percent, led by a 1.4 percent slump in Brazil’s real.
The declines in China are adding to concern that Greece will exit the European currency union as European leaders set a Sunday deadline to accept a rescue proposal for a bailout. The possibility of a Greek exit from the bloc has weighed on eastern European assets. The Polish zloty fell for a third day. Bulgaria’s equity benchmark fell 1.5 percent to the lowest level this year. Four Greek banks operate units in the Balkan nation.
Vale SA, the world’s largest iron-ore producer, sank 4 percent in Sao Paulo as prices for the steel-making ingredient fell to the lowest in at least six years. Brazil’s Ibovespa stock benchmark slid 1.1 percent. Russia’s ruble weakened 1.3 percent to a three-month low against the dollar as the Micex Index retreated the most since late May.
“Investors are trying to price in the risk to global demand for commodities if the Chinese situation worsens,” Joseph Dayan, the head of markets at BCS Financial Group in London, said by e-mail. “Greece is also not helping at all. For EM economies such as Russia and Turkey, the European Union remains a massive trading partner.”
The Turkish lira weakened for a second day while the Borsa Istanbul 100 Index slid 1.4 percent. India’s stock benchmark fell 1.7 percent, the most in a month.
One repercussion of the financial-market turbulence is that the Federal Reserve could delay raising U.S. interest rates until next year, according to a Morgan Stanley index, which is based on an analysis of futures trading. Events in Greece and China are threatening to slow global economic growth.
The premium investors demand to hold emerging-market debt over U.S. Treasuries widened four basis points to 364 basis points, according to JPMorgan Chase & Co. indexes. All 10 industry groups in the MSCI Emerging Markets Index decreased. Huatai Securities Co. and Citic Securities Co. tumbled at least 9.5 percent in Hong Kong.
Chinese policy makers’ latest attempts to stop the selling, including measures to prop up small-cap stocks, were overshadowed by data showing an unprecedented liquidation of margin trades on Tuesday.
The Hang Seng China Enterprises gauge tumbled 6.1 percent, the most since 2011, after entering a bear market Tuesday, having dropped more than 20 percent from a high. Industrial & Commercial Bank of China Ltd. and Bank of China Ltd. dropped more than 6 percent.