A 608-point plunge in the Dow Jones Industrial Average triggered a reflexive sell-off across Asia yesterday, with the Straits Times Index (STI) falling below the psychological support level of 3,000 for the first time since January last year.
The sell-off was broad-based, with 11 of the 30 blue-chip counters that make up STI - or one-third of them - hitting 52-week lows even before the lunch break yesterday.
While there were signs by evening that the rout had been stemmed for now - Asian markets clawed back some ground and several European and United States markets opened in positive territory - there were fears that volatility would be here to stay for some time.
The Singapore market opened with the STI losing 1.5 per cent to 2,986.20, before paring losses to finish 0.63 per cent down at 3,012.84. Markets in Japan, Hong Kong, Shenzhen, Taiwan, Korea and Malaysia all ended in the red yesterday, with Shanghai, Thailand and Jakarta being the only exceptions.
It was a day when existing worries linked up with emerging ones to batter the markets. On top of escalating trade war tensions, rising interest rates and concerns about economic growth and corporate earnings, the strengthening US dollar has accelerated outflows from emerging markets into US dollar-denominated assets and high-yield US Treasury bonds. Stocks lost their allure as bonds became more appealing.
Analysts are also worried that if the US Federal Reserve keeps raising interest rates next year, money will keep flowing back to the US.
"Can Asian markets really withstand four rate hikes in the US next year? People should really think about that," Mr Steven Yeung of UOB Kay Hian told Bloomberg in Hong Kong.
CMC market analyst Margaret Yang told The Straits Times: "Rising input costs for manufac-turers against the backdrop of higher tariffs alongside rising raw material prices triggered panic selling worldwide."
Fears that tariffs and rising costs could hit earnings have grown.
"We still do not know the full outcome of this trade war as the US and China act and react with rhetoric," Mr Jim McCafferty, head of equity research for Asia ex-Japan at Nomura Holdings, told Bloomberg. "US tech names are also highly volatile, so it is inevitable that this volatility will spread to the supply chain in Asia."
As Ms Yang put it, "the market is selling on expectations of the worst".
Local banks, semiconductor makers, property developers, offshore and marine and shipping counters were among the worst performers. Even casino operator Genting Singapore was not spared, slipping 2.2 per cent to 89 cents yesterday, a level last seen in January last year.
Ms Yang said: "3,000 is a pretty strong support level. But if it doesn't hold, the next support is likely at 2,950. Any level below 2,900 is good buying opportunity. STI's dividend yield will go to about 4.8 per cent, which should attract investor money back. Dividend yields are now at 4.5 per cent, which are fairly high."
What is encouraging is that retail and institutional investors are still adding to their local stock purchases, albeit at a slower rate, according to Singapore Exchange data. For the week of Oct 15, retail investors net bought $151.1 million worth of Singapore stocks, compared with $333.3 million a week ago. Institutional investors net bought $84.5 million of local stocks, compared with $120.1 million a week ago.
"Singapore's economic fundamentals remain resilient. We don't see early signs of a recession or any sharp drop in economic momentum," Ms Yang said.
"As long as earnings remain stable, or post only a moderate decline from the previous quarter, that is reasonable. The Singapore market's valuations in terms of price-to-earnings ratio have already fallen to three-year lows. If there are positive surprises from the third-quarter earnings season, which just started, the market will likely be supported," she said.