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THE runaway Chinese train ploughed through a broad swathe of risk markets on Monday to wreak a destruction scale not seen since the global financial crisis seven years ago.
Looking across the different asset classes, analysts reported diminished expectations of US interest rate hikes in September, bearish views on Asian currencies, soft outlooks for commodity prices and a bearish view on regional equities.
The Shanghai benchmark fell by 8.5 per cent to close at 3,209.91, with many stocks falling by the daily allowable maximum of 10 per cent. With the region's heavyweight pulling down its neighbours, regional bourses struggled to stay above water.
In New York at 1145 am on Monday, the Dow Jones Industrial Average was trading some 380 points down, after recovering from a steeper fall at the opening.
Singapore's Straits Times Index (STI) fell by 4.3 per cent to close at 2,843.39, the first time the index has dropped by such a large percentage since the height of the last global crisis in 2008.
"This is unbelievable," a Singapore stock trader said. "It's madness everywhere you look. If you're caught, sorry, brother, I don't have anything for you to hold on to."
Driving the sell-offs were mounting concerns about the slowing Chinese economy, for which the latest manufacturing data was a 77-month low, UBS regional chief investment officer Kelvin Tay said.
Still, strategists are mostly sanguine about the economic impact of the market turmoil.
"Last week's economic data was not bad enough to fundamentally change our outlook for global growth," Mr Tay said. "We . . . are not expecting things to worsen in China. Rather we believe that momentum will gradually pick up towards year-end."
Lena Teoh, regional head of asset allocation for Credit Suisse Private Banking and Wealth Management, said there was a risk of further volatility, but current turmoil could be "just another market correction" given central banks' current dovishness.
"It seems to me like the case of the tail wagging the dog, but really, apart from the developed world where things are moving along, Asia could be in for a more protracted slowdown," she said.
A US rate hike, however, could be delayed. Investors are now pricing in just a 34 per cent chance of a September hike, down from 60 per cent a few weeks ago, investment firm Blackrock reported.
Said Richard Jerram, Bank of Singapore's chief economist: "The US is close to full employment and the Fed clearly wants to push rates away from zero, but at the same time there is no particular urgency, so if it needs to wait a few more months, then this is no problem."
Fixed income investors need to account for that uncertainty, said Templeton Emerging Markets Group executive chairman Mark Mobius.
"Investors should consider managing their fixed income portfolios with a defensive posture - one that can not only potentially generate income, but also aims to position for the least-nausea-inducing ride," he said.
DBS regional equity strategist Joanne Goh, who was underweight Asian equities, said it would take "stabilisation in China's growth, or a reversal in the US dollar strengthening trend" to restore confidence.
"However, both are unlikely in the near term," Ms Goh said.
Within Singapore, OCBC Investment Research saw potential resilience among listed companies with high US dollar revenue.
OCBC research head Carmen Lee called a "buy" on local lenders DBS Group and United Overseas Bank, seeing intact earnings estimates despite recent price corrections. Most other key sectors covered by the firm are rated "neutral" or "underweight".
Credit Suisse was negative on emerging equities, preferring Europe, Switzerland and Japan. The firm, however, was unusually upbeat on China.
"Ironically, China which had been the source of agony is attractively valued, where we have an 'outperform'," Credit Suisse's Ms Teoh said.
Regional currencies have been among the most dramatic decliners, especially after China devalued the yuan a couple of weeks ago. The Malaysian ringgit on Monday settled below three to one Singapore dollar for the first time ever.
But few expect currency warfare.
"Asian central banks . . . have welcomed currency weakness as a valve to lessen pressure on economic growth and to rectify their current account imbalances," said UBS's Mr Tay. "With the exchange rate levels fairly aligned with the region's macro fundamentals, coupled with foreign currency reserves and current account balances on a much stronger footing than in the late 1990s, a repeat of the Asian financial crisis . . . is unlikely."
Bank of Singapore currency strategist Sim Moh Siong said Indonesia's rupiah reflects weak commodities, while China trade exposure hurts the Taiwanese and Singaporean dollars and the South Korean won. The ringgit faces headwinds on both fronts.
The Indian rupee and the Filipino peso, however, may offer shelter.
Mr Sim, who expects the Sing dollar to weaken to S$1.40 per US dollar, said the greenback's bull is still alive, albeit ageing.
"If you're a currency investor, in this kind of situation it's a bit hard to do things . . . If you've not bought the umbrella before it rains, it's hard to find an umbrella when it rains," Mr Sim said. "Not only is it raining, it's pouring out there."
In commodities, oil prices remained gloomy, declining by 3.8 per cent to about US$43.74 per barrel on Monday.
"With the US Federal Reserve rate hike around the corner, China's slowing economy, ample crude oil supply, and favourable weather conditions, commodities face a set of significant hurdles," UBS's Mr Tay said. "As such, we would not be surprised to see another round of price weakness in the very short run. We believe it is too early to take on long exposure to broadly diversified commodity indices at present."
Gold has seen some interest amid the volatility, but some caution may be warranted.
OCBC analyst Barnabas Gan said: "Equity sell-off and rally in bond yields have led investors to flock to gold as a safe haven. However, do not lose sight of a likely Fed rate hike sometime this year, which underpins our bearish view of gold. When the hike arrives, it should translate to a firmer greenback and dull gold as an investment given its zero interest yield. We maintain our year-end forecast for gold at US$1,050 per ounce."