SHARE THIS ARTICLE Share Tweet Post Email

Photographer: STR/AFP via Getty Images Photographer: STR/AFP via Getty Images

Emerging-market stocks slumped the most in a month as Morgan Stanley’s warning that valuations are too high led to a rout in Chinese shares and Greek bailout talks remained at a stalemate.

The MSCI Emerging Markets Index dropped 0.8 percent to

980.63, reducing its weekly gain to 0.6 percent. The Shanghai Composite Index tumbled 7.4 percent to a seven-week low as the ChiNext index dominated by technology shares sank 8.9 percent. Indian stocks slumped 0.3 percent, while shares in South Africa ended a four-day advance. A gauge tracking 20 developing-nation currencies fell to a two-week low.

In China, investors cut leveraged holdings, pushing equities toward a bear market. Morgan Stanley, in a report on Friday, cited increased equity supply, weak earnings growth, high valuations and the surge in margin debt for its pessimistic stance, saying the Chinese gauge may fall as much as 30 percent through mid-2016. Euro-area finance ministers are due to meet on Saturday to try reach an agreement after Prime Minister Alexis Tsipras lamented the terms in the latest proposal.

“This is a China specific move,” Hertta Alava, the head of emerging markets at FIM Asset Management Ltd. in Helsinki, said by e-mail. “Shanghai took a big hit today. Tech stocks in ChiNext are trading at sky high levels, which reminds me of the bubble we had in Western markets 15 years ago.”

The developing-nation gauge has risen 2.5 percent this year and trades at 11.9 times projected 12-month earnings, data compiled by Bloomberg show. The MSCI World Index has gained 3.9 percent in 2015 and is valued at a multiple of 16.5.

China Plunge

The Shanghai Composite dropped the most in five months, nearing a bear market, after Morgan Stanley said its 19 percent plunge since June 12 isn’t a buying opportunity. The gauge has fallen 9.1 percent this month, poised for the largest slump in two years.

Hong Kong’s Hang Seng China Enterprises Index sank to the lowest close since April 2 as Ping An Insurance (Group) Co. fell

3.5 percent.

“China’s stock market is starting to show some cracks as more investors are questioning the sustainability of valuations,” Jonathan Ravelas, a chief market strategist at BDO Unibank Inc., said in Manila.

The pressure is on for a weekend deal for Greece. Tsipras is faced with a proposal by creditors to unlock as much as 15.5 billion euros ($17.3 billion) and extend Greece’s program through November that does not include the debt relief he sought. Failure to reach an agreement by Monday morning puts at risk a payment due June 30 to the International Monetary Fund and raises the specter of capital controls.

Brazil Rally

The WIG Index slid 0.6 percent to a one-week low in Warsaw. The FTSE/JSE Africa All Share Index slipped 0.4 percent in Johannesburg.

The Ibovespa rallied 1.6 percent after Brazil’s central bank lowered the upper limit of its inflation target to boost confidence in an economy set for the worst recession since 1990.

The ringgit weakened 0.3 percent, slumping for a fourth day amid speculation Malaysia is facing its first credit-rating downgrade since 1998. Fitch Ratings will review the nation’s A-ranking before the end of the month, Andrew Colquhoun, head of Asia Pacific sovereign ratings, said June 23.

The Bloomberg gauge of emerging-market currencies slipped

0.3 percent. The premium investors demand to hold emerging-markets debt over U.S. Treasuries narrowed five basis points to 334 basis points, according to JPMorgan Chase & Co. indexes.