Singapore bourse suffers wild swings, more pain in store

Singapore

WALL Street's worst plunge in three decades sent shivers through the Singapore bourse on Friday with unusually wild price swings as panic rose over a looming recession owing to the Covid-19 outbreak and plunging oil prices.

While traders were fixated on how low can stocks go and for how long, there appeared to be general consensus among pundits that more pain is in store as the outbreak - now officially a pandemic - has yet to peak.

"The capitulation of the Singapore equity market over recent weeks has been historic in scale, and triggered by record declines in global markets that have not been witnessed since the last crisis," remarked Bank of Singapore's investment strategy head Eli Lee.

The local market's key Straits Times Index fell 1.7 per cent or 45 points to 2,634.00 on Friday and wrapped the week in the red by 11 per cent. Virus jitters engulfed major Asian markets with key gauges in Japan, Hong Kong, Australia, South Korea and Malaysia losing between 8 and 16 per cent over the week.

While this is not the markets' first rodeo in terms of recession fears - think, the Asian financial crisis, the US' subprime mortgage mess that led to the global financial crisis (GFC) and the eurozone sovereign debt trouble - the extent of this week's gyrations on the Singapore Exchange was unnerving for market players. "What a crazy day," remarked a dealer.

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Given the sharp plunge, the Singapore market may be technically oversold and could see bouts of bouncing back but the prognosis remains unchanged.

"The street is running around like headless chickens grasping at straws. The world is dealing with a simultaneous oil price and coronavirus shock to aggregate supply and demand.

"Bear markets will see short-term spikes, but the underlying reality remains the same. We will not miraculously exit the woods," said Jeffrey Halley, Oanda's Asia Pacific senior market analyst.

The market chaos was led by the overnight meltdown in Wall Street with US stocks hitting critical circuit breaker levels for the second time in one week following US President Donald Trump's travel ban on European countries that added more fuel to the fire.

"What is more alarming is that these gut-wrenching declines across stocks have come despite emergency action by the Federal Reserve, Bank of England and European Central Bank to rescue markets.

There seems to be little faith over the effectiveness of monetary policy shielding the economy from the impact of the coronavirus," said FXTM senior research analyst Lukman Otunuga.

Adding salt to the wound is the continued fall in oil prices as a result of the price war between Saudi Arabia and Russia. Brent crude collapsed by 9 per cent to US$32.70 a barrel while WTI slipped nearly 7 per cent to US$30.90 a barrel, but by late evening in Asia, they recovered to US$36.89/b and US$33.16/b.

Lower oil prices over the long term are generally positive for economies, particularly for most Asian economies that are net oil importers. However, based on the commodity's slump in 2015 and 2016, Mr Lee said it could do much short-term harm to financial markets.

This is because lower oil prices pile the pressure on high-yield credit markets, result in lower capex plus layoffs across the oil and gas sector and weaker fiscal balances for oil-exporting countries, which now require significant resources to combat the effects of the outbreak.

On the back of these, he expects "persistent volatility" in Singapore equities as "conditions for stability are not fully in place" given the infection rate of the Covid-19 has not peaked.

"Although equity valuations are relatively more attractive after the sell-off, deep value has not sufficiently emerged for bargain hunters to show up in force," said Mr Lee.

Angus Mackintosh, SmartKarma insight provider, said that looking back at the global financial crisis (GFC) could provide an idea on how low the Singapore market could go, although much depends on how things unfold on the virus front.

For example, DBS Group Holdings which has seen a massive sell-off is still trading at 1 time price-to-book value (PBV) versus its low of 0.59 times PBV at the height of the GFC in March 2009.

From the technical lens, Thomas Schroeder of Chart Partners said if the STI breaks below 2,520 points and stays below this key level, a more bearish leg down to test 2,000 points which he deemed as a "viable bottoming zone" would be in store.

He added: "These sharp downturns tend to take months to see the cycle carry through. By summer, we should be at a better posture to rally into year end.

"Risk lies with Singapore and the globe going into recession. The current economic halt around the globe is unprecedented as are the border shutdowns that are taking place. More pain is in store".