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Dow plunge: How is it affecting the Singapore stock market?

THE global stock rout led by the worst point plunge ever in the US Dow benchmark continued apace on Tuesday, with Singapore's Straits Times Index (STI) down by 121.67 points, or 3.5 per cent, as at 11.25am.

Global bourses are seeing their biggest sell-off since 2016. Wall Street indexes plunged overnight, with traders in Asia waking up to find the Dow sank over a thousand points or 4.6 per cent.

Q: Why has there been a selling frenzy in the US?

A: Last Friday's weak performance came on the back of steady US job numbers for the month of January.

You might think that good news would fuel traders' optimism.

But investors feared instead that higher wages would drive inflation upwards - which might lead the Federal Reserve, or the US central bank, to raise interest rates faster and more often than expected.

So they started dumping their stocks last week - and continued when the markets reopened on Monday.

Mr Oriano Lizza, a Singapore-based sales trader at CMC Markets, said: "The magnitude of the drop can be quantified as all of 2018's gains were erased." And the market losses have been engulfed in a vicious circle of sorts, with Mr Lizza writing that the recent downtrend "has put panic into investors".

"This may be the start of further declines in the coming days," he said.

Another issue could be the rise of automated, algorithmic trading and robo-advisors. Computer-driven trading is likely amplifying the rout as index levels, particularly that for market volatility, are breached.

American financial magazine Barron's noted that "machines likely made the highs and lows more dramatic".

Q: What was happening in the Singapore market before the latest drop?

A: Traders pushed the benchmark Straits Times Index (STI) to 10-year highs in mid-January.

Caution then led them to beat a retreat after the index crossed the 3,600-point mark at the close on Jan 24 - around the time that the latest earnings season kicked off.

This is when companies post their quarterly financial result, which is viewed as a report card on how business is faring.

But the Singapore sell-off accelerated markedly when trading picked up this week.

The movement came partly in response to the drop in the United States stock market on Feb 2, ahead of the weekend break.

Q: How have other Asian markets been doing?

Some are faring worse. The STI fell by 1.33 per cent on Monday, which was worse than the Hang Seng's 1.09 per cent drop in Hong Kong but not as bad as the 2.55 per cent decline in Tokyo's Nikkei.

Mainland China was propped up on Monday by signs of strong growth in the services sector, but no major data releases are scheduled for Asia on Tuesday.

After the Tuesday open, Sydney was down by 2.58 per cent, Hong Kong by 3.77 per cent and Tokyo by 5.17 per cent.

China's blue-chip CSI300 index and its Shanghai Composite Index were both also lower in morning trading.

Q: Is it time to panic? How long will this sell-off last?

The consensus among analysts still seems to be that the world's plummeting indexes are "healthy" corrections after a long stock-market rally.

Mr Rob Carnell, ING's Singapore-based chief economist and head of research for the Asia-Pacific region, said: "There has been nothing substantial overnight to propel further losses, merely the sell-off of the previous day gathering momentum." Mr Samuel Siew, an analyst at Phillip Futures in Singapore, remarked: "We feel that this may just be a correction as fundamentals are still showing a... positive US economy. The sell-off due to investor sentiments is likely temporal." And, since earnings season is still under way worldwide, some market watchers feel that strong financial results could offer support to the markets.

Deutsche Bank Wealth Management's US investment strategists Larry Adam, Matt Barry and Moshe Levin wrote in a memo that "the positive underlying backdrop of improving economic growth and earnings should remain supportive of global equities".

But AxiTrader chief market strategist Greg McKenna, who is based in Australia, was more circumspect about the doom and gloom."We don't need to listen to the pundits - me included - we need to see what the retail investors who have such a part of this latest surge in stocks do," he wrote on his blog.

He added, with an ominous touch, that a drop of 3 per cent to 5 per cent "can easily morph into something more pernicious".

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