SINGAPORE - China's shock move to sharply devalue the yuan for a second day running, overnight losses on Wall Street and the strengthening US dollar pushed all Asian bourses including Singapore's into the red.
Singapore shares suffered the biggest one-day fall this year, crashing as much as 2.95 per cent or 93.3 points to 3,059.76 as trading opened on Wednesday (Aug 12). As at 1.17 pm, the Straits Times Index was down 79.91 points or 2.53 per cent to 3,073.15.
"Given the volume sell-down, this could signal that funds are flowing out of Singapore," remisier Alvin Yong said. "The markets are down because of deflationary forces arising from yuan devaluation and the strengthening dollar."
"The next technical support is 3,070, while psychological support is now at 3,000," he added.
As at 1,14 pm, Japan is down 1.75 per cent, Hang Seng is down 2.06 per cent, Shanghai and Shenzhen are down 0.45 per cent and 0.36 per cent respectively. Malaysia slipped 1.42 per cent and Indonesia fell 2.66 per cent.
The greenback's strength has also propelled the key three-month Sibor (Singapore interbank offered rate) to 0.9345 per cent today, from 0.87908 per cent on Tuesday. The three-month SOR (Swap Offer Rate) jumped to 1.07461 on Tuesday from 0.99679 per cent on Aug 6.
DBS Group Holdings, OCBC Bank and United Overseas Bank, Singapore's three key lenders, each slumped at least 4.4 per cent and contributed the most to the benchmark 's decline.
Singapore banks have been making inroads into China and the People's Bank of China's move to devalue its currency will hurt their earnings, Daiwa Securities Group told Bloomberg News.
The yuan was headed for its biggest two-day drop in 21 years after the PBOC's reference rate was cut to the weakest level since 2012.
The Straits Times Index has lost 8.7 per cent this year, the worst-performing stock gauge among developed countries after Greece.
The Greater China region made up 30 per cent of pretax profit at DBS in the first half of this year, the most among the three Singapore lenders. The region accounted for about a fifth of OCBC's pretax profit and about 11 per cent of UOB's.
"It's mainly a sentiment issue here from China," Mr Hans Goetti, the head of investment for Asia at Banque Internationale a Luxembourg SA, told Bloomberg News. The profitability of Singapore banks will probably be limited as "China has slowed down a a lot already," he added.
Singapore cut the upper end of its growth forecast for 2015 on Tuesday after the economy shrank last quarter, citing China's slowing growth as one key risk to its export-dependent economy. The Republic is now seen growing 2-2.5 epr cent for the year from 2-4 per cent.