President Donald Trump's first major legislative setback on healthcare reform sent markets across Asia slumping yesterday amid fears that his economic reform agenda will not be fulfilled.
The Straits Times Index (STI) lost nearly 1 per cent at the opening bell, before recovering to end 0.51 per cent lower, while Japan slipped 1.55 per cent. Hong Kong was down 0.68 per cent, and Jakarta 0.47 per cent.
There was bloodletting in the currency markets, too, with the United States dollar sinking to its lowest against the Singdollar - at 1.3935 - since Mr Trump's election win on Nov 9 last year. The gloom stretched across Europe, with most stock markets dipping, and Wall Street looked to be heading in the same direction with the Dow opening sharply lower yesterday.
The slide set in after Mr Trump's Republican Party backed down on healthcare reform. This, in turn, has raised doubts over whether he can push through his economic agenda.
His proposed tax cuts were to have been paid for by savings from changes to the healthcare Bill. With the changes now shelved, any tax cuts will add to the budget deficit, puncturing Mr Trump's promise to get rid of the national debt "over a period of eight years".
UOB economist Francis Tan said: "Each time we see more of these promises become hot air, equity markets will sell down."
Analysts say the share sell-off is unsurprising, given the intensity of the rally since the US election, which saw the S&P 500 surging 9.6 per cent, Nasdaq jumping 12.2 per cent and STI gaining 12.1 per cent.
"The strong rally was based on the assumption that Trump will soon unleash substantial fiscal stimulus and financial deregulation to boost the US economy. But so far, this has not exactly been the case," DBS chief investment officer Lim Say Boon said.
"Now, the burning question is, if Trump has already failed to push through the healthcare Bill in a Republican-majority Congress, what are the chances of taxation cuts and infrastructure spending gaining legislative approval?"
CIMB economist Song Seng Wun said Mr Trump may have tactically given up on healthcare reform to focus on tax cuts. But the markets remain nervous. "Investors are taking some money off the table until they see if the macro numbers are sustainable and if Trump can put his economic agenda back on track," Mr Song said.
The anxiety sent gold, the traditional refuge during volatility, surging to a one-month high at US$1,256.79 an ounce.
Nerves could be frayed further as Britain prepares to trigger the start of Brexit talks tomorrow, with a battle looming over a £50 billion (S$87.6 billion) "divorce fee" it may have to pay when it leaves the European Union.
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