The share prices of commodity firms across Asia slumped yesterday, sparking a major sell-off in regional markets for a second day.
Rising worries over China's slowing economy and the ability of big commodity firms to pay debt sent investors fleeing from risky assets to safe-haven currencies and gold.
One key catalyst was commodity giant Glencore's share price crashing by as much as a third in London ahead of Asian trading.
The biggest casualties of the rout were resource-producing economies, including Malaysia, Indonesia and Australia.
The ringgit fell to as low as RM3.12 to the Singdollar and as low as RM4.485 to the US dollar, its weakest since January 1998. The Indonesian rupiah also fell sharply in trading yesterday, slipping to 14,730 against the US dollar at one point, its lowest since mid-July 1998. The Singdollar dropped to a six-year low against the greenback. It went as low as $1.4335 a US dollar.
Investors worried over where China's economy is headed got more bad news as a report showed profits of its industrial firms fell 8.8 per cent last month. It set off a wave of selling: Tokyo tumbled 4.05 per cent, Hong Kong lost nearly 3 per cent and Sydney sank 3.8 per cent. Singapore's Straits Times Index shed just 3.98 points to 2,787.94.
Glencore's rising debt worries have now sent its share price diving almost 76 per cent this year. Yesterday, its shares rose 7 per cent when London opened, but analysts say the rout is far from over. Mr Mark Tinker, head of fund management firm AXA Framlington Asia, blamed traders for the sharp sell-off. "For foreign exchange and commodities traders right now, the profitable noise is still the 'sell the China trade', commodities, foreign exchange, emerging markets."
But while commodity firms' share prices may keep falling, Phillip Futures investment analyst Daniel Ang believes commodity prices themselves are nearing bottom. He said crude oil - about US$47 a barrel yesterday - is likely to hold steady till the year end, if supply does not continue to rise. "If... Iranian oil comes onstream, and US does not cut its supply, we could see crude oil drop to as low as US$30 a barrel. But that's on the low side."
But there is a real worry that if China suffers a "hard landing" - where growth rates fall more than expected - then Asia could suffer a longer-term impact, including a regional recession, said economists.
Bank of America Merrill Lynch economist Chua Hak Bin said the pace and steepness of US interest rate hikes are key questions. "As it is, Taiwan and Singapore are likely to have a technical recession this year, while Malaysia and Indonesia are facing troubles of their own."
But Mr Anthony Raza, head of multi-asset strategy at UOB Asset Management, said a repeat of the Asian financial crisis in 1997 "is unlikely because foreign reserves, external debt and banking-sector health are all stronger now".