Insight: What ails the Singapore economy

People walking along the Marina Bay Waterfront Promenade.
People walking along the Marina Bay Waterfront Promenade. ST PHOTO: KUA CHEE SIONG

Singapore - A confluence of bad news from around the world has hit Wall Street hard, and that depression has affected the mood in the local market too, analysts said. With today's red ink in the market, the Straits Times Index has lost all its gains of the year.

The local benchmark Straits Times Index had fallen over 1 per cent by 11:30a.m. on Thursday, as other Asian stocks slid toward a six-month low.

CIMB says that the last couple of months have delivered event scares such as the Ukraine crisis, Hong Kong protests and Ebola epidemic. Taken together with the macro backdrop, CIMB says that this has made investors edgy.

CMC Markets analyst Desmond Chua told The Straits Times that disappointing economic news out of Europe and China, topped by the recent release of weak retail sales data in the US, is adding further pressure on local sentiment.

"We are fully dependent on external factors. A significant amount of our exports go to Europe and the US, and with these major economies looking bleak... that is likely why the STI has been hit rather badly."

Mr Chua said the sell-off here may been overdone - the market took almost nine months to eke out some gains and just 26 days to erase all the progress made. However, it may take some time for the market to recover.

"We see this following through until late December, when we might see a Santa Claus rally," he said.

"There's been a significant correction in US equities and that's shaken investor confidence," Mr Toby Lawson, the head of futures, options and cash equities trading for Asia-Pacific at Newedge Group SA in Sydney, told Bloomberg.

"Geopolitical risks and the spread of Ebola are adding to global economic uncertainties. When the market is a state of flux, everything gets amplified."

The dramatic drop followed massive intraday corrections on Wall Street overnight, though most of the losses had been pared back by the closing of the market. The Dow Jones Industrial Average closed down 1.06 per cent after having lost over 2 per cent earlier in the trading day, while the S&P 500 ended 0.8 per cent lower.