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Asian markets hit by rout as trade fears mount on financial conditions squeeze

LIKE other key Asian markets, Singapore shares opened sharply lower on Thursday in a sea of red as Wall Street slumped on concerns that a trade war is heating up as financial conditions tighten, dampening the outlook for profits.

On Wednesday, the S&P 500 stock index fell more than 3 per cent, its biggest one-day fall since February.

At 10am, Singapore's Straits Times Index (STI) was down 2.6 per cent or 79.89 points at 3,051.59. The STI has not traded below Thursday's open of 3,074.77 since February 2017, and has fallen about 6 per cent since closing at 3,263 early last week.

CMC's Maragret Yang said that market participants were also waiting on the Monetary Authority of Singapore's biannual policy announcement to paint a clearer picture of the policy outlook.

Among index-listed stocks, Venture Corp shares were trading lower by S$0.79 or 4.7 per cent at S$15.95; Genting Singapore shares were down S$0.045 or 4.5 per cent at S$0.955; and Yangzijiang shares traded down S$0.05 or 4.0 per cent at S$1.20.

Financials faired little better with DBS shares down S$0.52 or 2.1 per cent at S$24.43; OCBC Bank shares were lower by S$0.31 or 2.8 per cent at S$10.64; and UOB slipped S$0.67 or 2.6 per cent at S$25.21.

In regional markets, the Shanghai Composite Index sank 2.6 per cent, while the Hang Seng in Hong Kong tumbled 3.4 per cent. Australia's ASX 200 dropped 2.1 per cent, while South Korea's Kospi slid 2.8 per cent. Japan's benchmark Nikkei stock average has also dropped more than 3.4 per cent in early trading.

Stephen Innes, head of trading at Oanda, said: "The markets are fraught with peril as the focus not too unexpectedly remains on US equity and bond markets. And while there is not one plausible explanation for the latest equity tumult, the horrible intersection of risk aversion due to escalating US-China tensions and rising US rates has spooked out investors overnight triggering abroad selloff which took the S&P 500 to the lowest level since February."

This, Mr Innes said, was not helped by the CBOE Volatility Index rising above 20 before closing at 22.96, the highest since late March "which triggered more than just a wave of profit taking; investors were genuinely panicked". "All of which has investors cowering trying to determine if this is a case of risk aversion of the beginning of a massive correction."

Among currencies, the US dollar rose against the Singapore dollar to 1.384 per US dollar. One euro was worth S$1.589 in spot markets. The greenback was worth A$1.411 per US dollar, and the Japanese yen at US$1 to 113.1 yen.

UOB noted in its market overview by its global economics and markets research team that Asian currencies are likely to remain on the defensive for Thursday although "the overnight steep plunge in US equities may result in some follow through US dollar weakness on the pull back in 10 year US Treasuries yield below 3.2 per cent".

"More importantly, Asian currencies are likely to continue to take their cue from the Chinese yuan. And the yuan remains cautious ahead of the US Treasury’s 'FX Practices' report next week as well as repeated comments from the US Treasury expressing concerns over recent weakness in the yuan," UOB added.

Meanwhile, DBS Group Research analysts said: "Emerging market and Asia risky assets have sold off significantly over the past few months on the back of tighter higher US dollar rates and trade war worries. However, respite is not apparent just yet. Emerging market and Asia assets would come under further pressure if US equities sink further... Unlike a few months ago, emerging Asian currencies are finding it harder to shake off the multiple risks to the region’s economies and markets."