A surprise devaluation of the yuan, coupled with a slower growth target from Singapore regulators sent local shares tumbling yesterday, with both blue chip and smaller stocks taking a hit.
The benchmark Straits Times Index fell 43.6 points, or 1.36 per cent, to 3,153.06, with about 1.9 billion shares worth $1.8 billion changing hands. Early yesterday, the Ministry of Trade and Industry said it had narrowed its growth forecast. It now expects the economy to grow between 2 and 2.5 per cent this year, down from an earlier forecast of 2 to 4 per cent.
Compounding the gloom was China's devaluation, which is aimed at making its exports cheaper.
This in turn could hurt competitors in the region, whose own exports will now become more expensive in comparison. Mr Ray Farris, global head of currency strategy in Singapore at Credit Suisse Group, told Bloomberg: "(China) built into the market an expectation that (it was) keeping the currency stable.
"Then all of a sudden (it) blinked."
This sends a signal to the markets that the next time Chinese exports slide, regulators could very well depreciate the yuan again, he added.
Yesterday's sudden move triggered a broad sell-off across the region. Tokyo lost 0.4 per cent, Seoul dropped 0.8 per cent, Taipei declined 0.9 per cent and Sydney retreated 0.7 per cent.
Mainland and Hong Kong shares, however, took a smaller hit - Hong Kong's Hang Seng Index slipped 0.1 per cent, while Shanghai edged down less than 0.1 per cent.
Noble Group shares surged over 8 per cent when the market opened yesterday amid news that the firm had hired a veteran dealmaker to review its operations, but the gloom over the yuan caught up with the stock, which ended the day in the red, down a cent to 57 cents.
Other commodity players also fell, with Olam International decreasing a cent to $1.79, Wilmar International sliding 10 cents to $3.07, Indofood Agri declining half a cent to 57.5 cents and Golden Agri-Resources losing 1.5 cents to 32 cents.
China-based companies and local companies with a large exposure to the Chinese market were similarly punished.
Sino Construction dropped 0.2 cent to 3.2 cents, China Sports fell 0.2 cent to 2.2 cents and CapitaLand slipped two cents to $3.20.
Hyflux International slid half a cent to 83.5 cents after reporting a 58 per cent drop in net profit last Thursday.
OCBC Investment Research analyst Carey Wong said in a note yesterday: "Given the dismal showing so far, we suspect that more disappointments could be in store for the rest of the year."
China-based tech manufacturer Hi-P fell half a cent to 49.5 cents, even after reporting that it had managed to narrow its loss in the second quarter to $8 million.