Japan's Nikkei saw its worst day since the “Black Monday” crash of 1987. Its loss of 4,451.28 points was also the largest in its history. - PHOTO: AFP
SINGAPORE/TOKYO (agencies): A global stocks sell-off deepened in Asia on Aug 5 as fears that the US could be heading for recession sent investors rushing from risk assets while wagering interest rates will have to fall rapidly to rescue growth.
In Singapore, the Straits Times Index (STI) closed down 4.1 per cent, after sliding as much as 4.9 per cent earlier in the day.
The last time the market was more hammered was on March 23, 2020, during the outset of the Covid-19 pandemic when the STI plunged 7.4 per cent. The index’s biggest-ever drop occurred on Oct 24, 2008, in the midst of the global financial crisis when shares dived 8.3 per cent.
Local banks led the losses in value terms on Aug 5, with DBS ending 5.8 per cent lower at $33.27, while UOB lost 5.5 per cent to $30.08 and OCBC Bank fell 5.3 per cent to $14.02.
Japan’s Nikkei 225 Stock Average plunged 12.4 per cent as investor confidence crumbled on a surge in the yen, tighter monetary policy and broader concern about the US economy.
It was the worst day for the Nikkei since the Black Monday crash of 1987. Its loss of 4,451.28 points was also the largest in its history. Japan also entered a bear market, as the Nikkei was down more than 20 per cent from its most recent high.
“It’s hard to say what is behind the decline in stocks,” Mr Suzuki told reporters, adding that the authorities were monitoring stock market moves with “grave concern”.
The surge in the yen since the Bank of Japan (BOJ) raised interest rates on July 31 has cast a pall over the earnings outlook for Japan’s exporters. Even insurers and banks that were expected to benefit from higher rates are now some of the biggest losers since the BOJ’s hike as global equity markets slump.
South Korea’s Kospi index plunged 8.8 per cent, while Australia’s S&P/ASX200 tumbled 3.7 per cent. Hong Kong’s Hang Seng Index dropped 1.5 per cent, while the Shanghai Composite ended down 1.5 per cent.
Nasdaq futures sank 4.1 per cent, while S&P 500 futures dropped 2.5 per cent.
European stocks fell sharply in early trading with London’s FTSE 100 down 2.2 per cent.
The market rout underscores how quickly sentiment has shifted away from expectations that the Federal Reserve will be able to engineer a soft landing for the US economy.
It comes after data on Aug 2 showed the US economy added far fewer jobs than expected in June, while the jobless rate unexpectedly climbed for a fourth month to 4.3 per cent, above the Fed’s year-end forecast, triggering a closely watched recession indicator.
A day earlier, lacklustre US manufacturing data stoked concerns that the Federal Reserve may have held borrowing costs at more than two-decade highs too long.
Goldman Sachs Group economists increased the probability of a recession in the US over the next 12 months to 25 per cent from 15 per cent but said there were several reasons not to fear a slump, even after US unemployment jumped.
Analysts at JPMorgan were more bearish, subscribing a 50 per cent probability to a US recession.
Traders are projecting the Fed will cut rates by more than a full percentage point in 2024, with an increased chance of an outsized 50 basis-point cut in September, according to data compiled by Bloomberg.
Asia markets were also feeling the pain from a global tech rout which sent the Nasdaq index in the US down more than 10 per cent from its highs into correction territory last week.
Meanwhile, geopolitical tensions in the Middle East also sapped risk appetite as Israel braced itself for a possible attack from Iran and regional militias in retaliation for assassinations of Hezbollah and Hamas officials.
Oil prices started firmer amid concerns about a widening conflict in the Middle East, but worries about global demand soon dragged them down again.
Brent slipped 13 US cents to US$76.68 a barrel, while US crude lost 22 US cents to US$73.30 per barrel.
Investors ran for the safety of bonds. The huge drop in Treasury yields overshadowed the US dollar’s usual safe-haven appeal and dragged the currency down 0.4 per cent on a basket of major currencies. The dollar shed another 2.2 per cent on the Japanese yen at 143.1 yen.
The Swiss franc was a major beneficiary of the rush from risk, with the dollar falling 0.9 per cent to touch six-month lows at 0.8485 franc.
“If the recession narrative takes hold in earnest, we would expect that to change, and the dollar to rebound as safe-haven demand becomes the dominant driver in currency markets,” said Mr Jonas Goltermann, deputy chief markets economist at Capital Economics.
Cryptocurrencies also reeled from risk aversion on Aug 5, with the Bitcoin plunging as much 16 per cent.
Gold prices whipsawed in volatile trading, though analysts said the commodity’s safe-haven appeal remains strong as US recession fears mount.
Spot gold was down 0.8 per cent at US$2,425.04 an ounce by 5pm Singapore time. - AGENCIES
