Regional stock markets sank further into the red for the second day running yesterday, after China's efforts to quell the turmoil in the stock market failed to soothe investors.
Rattled investors jumped out of risky assets such as shares and fled to safe haven currencies and gold, despite reports that the Chinese government had pumped billions of dollars into the Chinese stock market.
The benchmark Straits Times Index fell 1.7 per cent to 2,834.23 points, alongside regional markets like Japan and Hong Kong.
US and European markets, however, stabilised late last night as US stocks opened flat, while European shares were up on a recovery in commodity prices.
"It is a really messy start to the year - everyone is really on edge," Mr William Hobbs, head of investment strategy at Barclays' wealth management unit in London, told Bloomberg. "Plenty of people out there believe that the next global recession is imminent."
Panicked selling by China's army of retail investors - estimated to drive 80 per cent of trade volumes - sent the nation's stock market tumbling on Monday, wiping out US$580 billion (S$830 billion) of value.
A repeat seemed to be on the cards when the markets opened yesterday.
The Shanghai Composite fell 3 per cent at the opening bell before reports of an orchestrated intervention by the Chinese authorities halted the slide temporarily.
Media reports said the Chinese authorities had asked state-controlled funds to buy equities to prop up the market, even as the government pumped 130 billion yuan (S$28.4 billion) into the financial system.
The securities regulator also signalled that a ban on stake sales held by major investors might remain beyond this week's expiration date.
The news boosted confidence, leading to a surge of the benchmark Shanghai Composite Index, which rose by about 1 per cent at midday.
But the intervention was not enough, as investors started to worry about the health of the global economy, which led to the market diving again in the afternoon. After the dust settled, Shanghai ended the day slightly down by 0.3 per cent.
The Shenzhen Composite Index retreated 1.36 per cent, while the CSI 300 Index, which tracks large capitalisation firms on both exchanges, advanced 0.3 per cent at the close after fluctuating between a gain of 1.4 per cent and a loss of 2.7 per cent.
Experts say China's moves yesterday could have been timed to reassure Chinese retail investors that the bank would support the market with cash.
"But investors should be prepared for volatility this year because of the many uncertainties the world, and China, is facing," said Professor Dong Dengxin, director of the Financial Securities Institute at the Wuhan University of Science and Technology.
The volatile session marked one of the worst starts to the year by global markets in years.
The MSCI Global, which tracks global stocks, was down by about 2 per cent over two days, and analysts said the worst might not be over.
"The price action reminds investors that the world is more connected than ever; volatility is likely here to stay, and liquidity may suffer if investor uncertainty worsens," said analysts at Citigroup.
Funds flowed into gold, which continued to rise for the second day, gaining 0.51 per cent to US$1,080.14 per troy ounce. The US dollar and the Japanese yen also gained as investors headed for shelter.