Published on Aug 6, 2011
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It was just too much to take for this currency dealer at the Korea Exchange Bank yesterday. Spooked investors wiped off a total of $3 trillion in value from global shares this week. -- PHOTO: REUTERS
By Jonathan Kwok
FEARS of another global recession sent panicked investors fleeing yesterday in the biggest share market bloodbath since the darkest days of the financial crisis.
Hundreds of billions of dollars were wiped off the value of stocks as a wave of selling swept across the globe, starting in Wall Street on Thursday before rolling across the Asia-Pacific and into Europe yesterday.
'You can't say much other than it's been a bloodbath today,' wrote Australian analyst Ben Potter of IG Markets. 'Nothing has been spared.'
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REGIONAL STOCKS PLUNGE
Yesterday's turmoil capped a savage week for shares as concerns over Europe's worsening debt crisis and the faltering United States economy sent investors rushing for the exits.
But the bloodshed earlier this week could hardly have prepared investors for the carnage that was unleashed yesterday.
Wall Street triggered the mayhem after the Dow Jones Industrial Average plunged 513 points, or 4.31 per cent, on Thursday, the worst mauling since December 2008.
Singapore's Straits Times Index (STI) then plunged 112.23 points, or 3.61 per cent, to 2,994.78 points, wiping $18 billion in market value off the index's 30 component stocks. The losses this week now amount to $31 billion.
The last time the STI lost more than 100 points was in October 2008 in the wake of the Lehman Brothers collapse. 'It's like deja vu,' said Singapore remisier Charles Chua. 'There could be a rebound going forward, but it's most probably going to be a short-lived one.'
There was plenty of pain to go around elsewhere.
Hong Kong's Hang Seng Index dropped 4.29 per cent, Taiwan's Taiex index plunged 5.58 per cent and Australian stocks dropped 4 per cent.
Around A$100 billion (S$128 billion) of value has been erased from Aussie shares this week while the global total is around US$2.5 trillion (S$3 trillion) - almost the size of the French economy.
The share sell-off sparked a rush into safe haven assets. Gold hit a record US$1,662.75 per ounce while Japan's and Switzerland's central banks had to intervene to curb the rises of their safe haven currencies.
The feeling is that there is more bloodshed to come although there was a welcome respite last night when far better US job figures were released.
There were 117,000 new jobs added last month, bringing unemployment down from 9.2 per cent to 9.1 per cent.
It gave shares an immediate lift. Paris shares were up 1.4 per cent in early trade while Britain's FTSE 100 index was down only 0.7 per cent after plunging more than 3 per cent earlier. On Wall Street, the Dow Jones Industrial Average opened 1 per cent higher.
In absolute terms, markets are still slightly higher than the levels they hit after March's Japan earthquake.
But what has shocked investors this time is the speed and size of the falls, which surpass even the Japan disaster, February's Arab Spring protests and last May's initial outbreak of euro zone debt woes.
'Markets endure a body slam,' declared the title of a research note by Citigroup. 'Reality sets in, but in an ugly way.'
Citi said that 'the US stock market's relative complacency has been shattered'.
The European debt crisis is at the centre of the storm with growing fears that Spain and Italy are now in the line of fire alongside Greece, Ireland and Portugal.
Interest rates for Spanish and Italian bonds have soared to levels considered unsustainable by some experts, raising the prospect that some sort of bailout will be needed.
European Commission President Jose Manuel Barroso sent already nervy investors into overdrive on Thursday when he declared that developments in Italy and Spain are 'a cause of deep concern', and that the crisis is no longer in the euro area periphery.
Mr Barroso also said investors are sceptical about the European Union's ability to respond to the crisis.
Mr Vasu Menon, OCBC Bank's head of content and research for wealth management for Singapore, urged calm.
'While there are good reasons for investors to stay vigilant and brace themselves for more volatility, we do not see a reason for panic as fundamentals, valuations and liquidity are still supportive of equity markets in the medium term.'
jonkwok@sph.com.sg
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