Bargain hunting helped local shares regain some ground yesterday after falling over 4 per cent in the first two trading days of this week.
The buying spree sent the Straits Times Index up 30.29 points or 0.99 per cent to 3,091.78.
Those numbers are nothing to sniff at, but RHB Securities has warned that the market is likely to stay volatile for the time being as investors grapple with the fallout from China's yuan devaluation.
"Brace for further near-term onslaught," the brokerage said in a note yesterday.
"We believe China's currency move will decrease the appetite for risky assets in Singapore in the near term. Downside risk includes other central banks being forced to follow suit, which may trigger a fresh round of currency weakening in the emerging economies."
The brokerage said investors should be especially cautious about putting money into companies that earn revenue in foreign currencies, given the fluctuations in the Singapore dollar.
"We favour stocks that rely solely on domestic demand or generate revenue or lock in contracts in the US dollar (or currencies pegged to the greenback). Stay defensive in this climate," it said.
Other regional bourses also staged a so-called "relief rally" yesterday, after China's central bank said it would intervene if the yuan weakened too much.
Tokyo closed up 0.99 per cent, Hong Kong rose 0.4 per cent, Shanghai advanced 1.8 per cent, Sydney added 0.11 per cent and Seoul climbed 0.4 per cent.
Banking stocks at home, which had led losses on Wednesday, ended higher. DBS Group increased 38 cents to $19.02, OCBC Bank added 18 cents to $9.68 and United Overseas Bank gained 37 cents to $20.35.
Barclays Research noted yesterday that the earlier sell-off of bank stocks was overdone and that it still liked DBS' solid capital buffer and strong earnings, which would help cushion the impact of any potential erosion in the quality of its assets amid a softening economic outlook.
Commodity players, also among the worst hit in the market rout earlier this week, regained some ground. Olam International rose three cents to $1.76, Wilmar International increased two cents to $3.05 and Golden Agri Resources added 1.5 cents to 32 cents.
Noble Group slipped half a cent to 50 cents after ratings agency Moody's cut its outlook on the company's debt from "stable" to "negative". Singtel enjoyed a positive close after reporting a 12.8 per cent rise in first-quarter net profit yesterday. Its shares gained nine cents to $3.98.