Asian markets staged a sharp rebound yesterday after central banks in Europe and Asia hinted at fresh stimulus, but analysts say more falls are in store.
After some of the bloodiest trading days since the financial crisis in 2008, investors finally had something to cheer about this year, with Singapore's benchmark Straits Times Index (STI) surging 1.75 per cent to 2,577.09.
Other bourses were even more high-spirited, with Tokyo rocketing 6 per cent - the most in four months - while Hong Kong climbed 2.9 per cent and Shanghai advanced 1.25 per cent.
The exuberance followed a rally on Wall Street and a bounce in crude oil prices, which rose about 5 per cent to above US$30 a barrel.
The spark came when European Central Bank chief Mario Draghi said the bank has plenty of instruments at its disposal to push inflation higher and is both determined and willing to move.
"We have the power, willingness and determination to act," he told a news conference. "There are no limits as to how far we are willing to deploy our policy instruments."
A report in Japan's Nikkei business daily yesterday added to the optimism, saying that the Bank of Japan is considering whether to introduce more stimulus to boost inflation, which has been hit by slumping oil prices and a stronger yen.
Meanwhile, Chinese Vice-President Li Yuanchao said the government is willing to intervene in the country's stock market to ease the volatility.
"An excessively fluctuating market is a market of speculation where only a few will gain the most benefit when most people suffer," Mr Li told Bloomberg News, after arriving at the World Economic Forum's annual meeting in Davos, Switzerland. "The Chinese government is going to look after the interests of most of the people, most of the investors."
Despite the light now visible at the end of the tunnel, analysts warn that markets are likely to continue fluctuating for weeks, if not months, to come.
"Some traders have been considering entering the market lately, especially with the STI trading around 2,500, so it looks like the talk of stimulus has emboldened some of them. The real question is whether this is sustainable, and I think we may still see some bad news globally," said NRA Capital research director Liu Jinshu.
"For instance, a continued drop in oil prices may push more companies into financial distress. In Singapore itself, we may want to look at how corporate earnings pan out for the first quarter, which we will find out only in May," he said.
Other analysts agree it is still too soon to say that the market mayhem has ended.
Mr William Wong, the head of sales trading at Shenwan Hongyuan Group, told Agence France-Presse: "The People's Bank of China is trying to put liquidity back in the financial system after capital outflows, and ahead of the Chinese New Year holidays.
"Sentiment is volatile and it will take some time to restore investor confidence."
Mr Nicholas Smith, a strategist at CLSA, told Reuters: "We are seeing a really nice bounce today as lots of people close their short positions, but that does not necessarily mean we have seen the bottom.
"It is tough to know when a panic is going to subside but it does look like we are starting to get there."