SINGAPORE - The Chinese central bank's shocking move to devalue the yuan a second time in as many days sent Singapore shares spiralling into their biggest one-day decline in almost four years.
Investors fear that the Singdollar, which closely tracks the yuan, will continue to weaken further as a result of China's actions.
The devaluations also served to confirm investor worries that the Chinese economy is in poor health.
The ensuing panic caused the Straits Times Index to plunge 91.57 points, or 2.9 per cent, to 3,061.49.
Local stocks have not dropped so sharply since October 2011, when the market was gripped by concerns over a debt crisis in the euro zone and the United States.
Singapore was the second-worst faring bourse in the region yesterday after Jakarta, which tumbled 3.1 per cent. Hong Kong dropped 2.4 per cent, Tokyo fell 1.6 per cent, Shanghai declined 1.1 per cent and Seoul retreated 0.6 per cent.
The Malaysian index was down 1.6 per cent while the Philippines lost 1 per cent and Vietnam fell 1.4 per cent.
Despite the poor showing here, UBS Wealth Management's chief investment officer for Southern Asia Pacific, Mr Kelvin Tay, said in a note on Wednesday that he is more optimistic about the Singapore market than other Asian bourses.
"With an already volatile investing environment likely to get more complicated over the next six months, we are reducing the risk levels in our Asian strategy and focusing on the traditionally more defensive markets in Asia," he said.
Banking stocks were among the biggest decliners, dragging the index down 2.9 per cent.
Shares of Noble Group Ltd were down 11 per cent despite a buyback plan.