Emerging stocks drop most since 2013 on Greece; China slumps

[JAKARTA] Emerging-market stocks headed for the steepest drop in two years and currencies tumbled as the collapse of Greek aid talks damped demand for riskier assets. Chinese equities in Shanghai were poised to enter a bear market.

The MSCI Emerging Markets Index fell 2.1 per cent to 959.75 at 1:10 pm in Hong Kong. Taiwan shares tumbled 2.5 per cent, while gauges in India, South Korea and Indonesia sank at least 1.2 per cent. The Shanghai Composite Index plunged 6.6 per cent, taking declines from its June 12 peak to more than 20 per cent. Turkey's lira slid 1.4 per cent versus the dollar and Malaysia's ringgit dropped toward a 2005 low. Hungary forint slid 0.8 per cent against the euro.

Greece shut its banks and imposed capital controls in a dead-of-night announcement to avert the collapse of its financial system as the country edged closer to an exit from the euro. Chinese stocks slumped as signs of an exodus by leveraged investors overshadowed the central bank's effort to revive confidence with an interest-rate cut.

"It's all about Greece today. Going into the weekend, there was expectation that they were in agreement, only to go back on their word all of a sudden, so markets are responding poorly to it," said Priyo Santoso, who oversees about $2 billion as chief investment officer at PT Mandiri Manajemen Investasi in Jakarta. "We expect to see the volatility continue for some time."

The move followed a weekend of turmoil that started with Prime Minister Alexis Tsipras's shock announcement late Friday of a July 5 referendum on austerity measures demanded by the country's creditors, sending people rushing to line up at ATMs and gas stations. The risk of potential contagion if Greece leaves the euro spurred a 1.5 per cent fall in the euro on Monday and sparked declines in Asian stocks.

The developing-nation gauge has risen 0.3 per cent this year and trades at 11.6 times projected 12-month earnings, data compiled by Bloomberg show. The MSCI World Index has gained 3.5 per cent in 2015 and is valued at a multiple of 16.4.

All 10 industry gauges in the emerging-markets measure fell, led by technology and financial stocks. The Taiex headed for the biggest slide since Oct. 13 as Hon Hai Precision Industry Co sank 2.3 per cent. ICICI Bank Ltd led a 1.9 per cent drop in India's S&P BSE Sensex index.

The Shanghai Composite tumbled for a third day. Margin debt on the Shanghai Stock Exchange fell for a fifth day Friday, sliding 2.5 per cent to 1.39 trillion yuan (S$299 billion) for the longest stretch of losses since June 2014. The People's Bank of China announced June 27 a 25 basis point cut in the benchmark lending rate, while also reducing reserve-requirement ratios for some lenders.

Hong Kong's Hang Seng China Enterprises Index plunged 4.7 per cent, poised for the steepest drop since Jan. 19.

A gauge of 20 developing-nation currencies weakened 0.7per cent, its fifth day of losses. South Korea's won headed for the lowest close since March 18. The lira weakened the most since June 8. The ringgit retreated 0.4 per cent as investors weighed whether Fitch Ratings would downgrade Malaysia and a worsening situation in Greece deterred risk-taking. The forint fell toward the weakest since Jan. 21.

BLOOMBERG

Read more on the Greek crisis here