STI Index plunges after PM Lee said coronavirus to last more than a year

The Straits Times Index, along with other major Asian indexes, nosedived over 5% a day after the World Health Organization declared COVID-19 a pandemic.

The Straits Times Index plummeted 5.24% overnight to open the Friday 13 March at 2,538.57 – its lowest level since late-2015.

Stock markets crash as coronavirus declared a pandemic

The index’s fall came a day after the World Health Organization declared the coronavirus outbreak a pandemic, and Singapore Prime Minister Lee Hsien Loong saying in a national address that the contagion is likely to last longer than a year.

On Thursday 12 March, the S&P 500 index and Dow Jones Industrial Average – two of the most closely-watched indexes in the US with a great deal of influence on the rest of the global stock market, according to IG Asia market strategist Pan Jingyi – crashed 9.51% and 9.99% respectively.

The US also implemented a 30-day travel ban on 26 mainland European countries within the Schengen border-free travel zone. UK and Ireland citizens are still allowed to travel into the US as they are outside of the area.

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IG analyst: markets in a ‘sell everything mode’

Pan said that between all these announcements, global market sentiments have come under attack ‘from all ends’ and have been ‘tipped into a sell everything mode’.

Other Asian benchmarks also lost big on Friday morning. Japan’s Nikkei 225 plunged 7.97%, Hong Kong’s Hang Seng Index opened the day 7.3% lower, South Korea’s KOSPI index dropped 5.6% overnight, while China’s main index Shanghai Composite erased 4.1% right from the outset.

Even safe-haven assets such as gold were not spared in this latest sell-off for liquidity to cover losses by traders, according to Pan. Gold price has fallen 5.2% since Thursday night Singapore time.

‘Notably, one would have seen the double-top formation, with spot gold prices as the earlier favoured safe-haven, was likewise let go alongside riskier assets such as equities,’ wrote Pan.

The US dollar’s rising demand amid the liquidity strain could also put more pressure on gold in the coming days, she added.

In the last 24 hours, the USD has gone up against most Asian currencies. The USD/SGD, which was already mounting a series of gains earlier this week, has smashed past S$1.41300 – a level not seen since April 2017. The USD/JPY, which has been falling in recent weeks in favour of the safe-haven yen, is also starting to see some rebounds.

Volatility to last at least one more month

For now, Pan estimates that the volatility could last for at least one more month (six to seven weeks, to be exact), based on a technical analysis of previous S&P 500 index records in which it has fallen over 5% in a single day.

Beyond that, it remains anyone’s guess.

‘Although the severity has yet to reach the 2008 global financial crisis levels, relief is unlikely to arrive with the injection of liquidity as we simply cannot gauge the magnitude of the measures against the disruption of the coronavirus,’ Pan wrote.

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