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MARKETS across Asia went into convulsions of anxiety yesterday, amid growing doubts over the strength of the global economic recovery.
Widely watched stock indexes in Singapore, Hong Kong and Shanghai all suffered their biggest one-day falls in value terms this year, as spooked investors scrambled for the exit.
In Singapore, the sell-off started at the opening bell, as traders reacted with dismay to weaker-than-expected consumer confidence figures in the United States released last Friday.
This raised fears that the world's No. 1 economy might be suffering from initial signs of deflation.
But it was Shanghai's 5.8 per cent plunge - its biggest one-day fall in nine months - that caused blue chips here to succumb to further selling pressure in the afternoon, as traders dived for cover.
This sent the Straits Times Index diving by 85.53 points, or 3.25 per cent, to close at 2,545.98 - its biggest one-day fall since last October when global markets were paralysed by fear after the collapse of investment bank Lehman Brothers. The diagnosis was largely the same for the malaise in other regional markets yesterday - sell-downs initially triggered by Wall Street jitters, and then exacerbated by the turmoil in Shanghai.
Hong Kong fell 3.6 per cent - its biggest one-day drop in nine months, while Seoul lost 2.8 per cent and even Tokyo was down 3.1 per cent, as investors there ignored news that Japan had emerged from recession in the second quarter.
For many traders, the region-wide stock market correction flagged the end of a five-week rally which had started with Singapore reporting a better-than-expected set of estimates for its second-quarter economic output.
'It was an exhilarating run-up while it lasted. There was a lot of money lured into the region in search of higher yields. But the recent corporate results were not fantastic, and some of the funds are pulling out their money and investing them elsewhere,' said a dealer.
Among the blue chips which took a beating were recent darlings of the five-week rally. These included DBS Group Holdings which fell 32 cents to $12.60, OCBC Bank which slipped 22 cents to $7.63 and United Overseas Bank which was down 40 cents at $16.32.
Given the uncertainty over the pace of economic recovery in Singapore's main export markets - the US and Europe - doubts have been growing over the ability of these blue chips to generate significant earnings growth.
Property counters also succumbed to profit-taking, as concerns over consumer confidence and jobless rates weighed on investor sentiment. City Developments fell 47 cents to $9.73, CapitaLand lost 14 cents to $3.56, while Fraser & Neave slipped 13 cents to $3.93.
There is also a growing feeling that the re-stocking of commodities, which was partly responsible for fuelling the global stock market rally in the past five months, might be coming to an end.
For the past two weeks, the Baltic Dry Index - tracking the freight rates for shipping commodities such as iron ore - had been falling almost daily.
This led some traders to conclude that China might have stockpiled most of the raw materials needed for its infrastructural projects.
Given the likelihood that US consumer demand will remain weak, commodity prices have been softening, with crude oil dropping US$1.60 to US$65.92 a barrel.
This caused oil-linked stocks to tumble, with rig-builders Keppel Corp dropping 29 cents to $7.76 and SembCorp Marine losing 27 cents to $3.12.
Stocks in the commodities sector were affected as well, with Noble Group dropping nine cents to $1.98 and Olam International falling eight cents to $2.45.
In the plantations sector, Wilmar International fell 30 cents to $6.25, while Golden Agri-Resources lost four cents to 46.5 cents.
With the direction of the regional bourses now largely governed by how Wall Street and Shanghai behave, traders are casting an anxious eye on both bourses to ascertain how prices of blue chips are likely to fare.
'We are caught between a rock and a hard place, squeezed as we are between Shanghai and Wall Street,' said remisier James Chen.
China's economy is in danger of over-heating again, following the loose lending policy extended by mainland banks since the start of the year in order to stimulate its domestic economy.
But in the US, the central bank has slashed interest rates to almost zero to head off deflation by spurring consumer spending.
More wild price swings are inevitable, as the policies from both economic giants collide in the region, he said.
With the direction of the regional bourses now largely governed by how Wall Street and Shanghai behave, traders are casting an anxious eye on both bourses to ascertain how prices of blue chips are likely to fare.
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