Scramble for greenback sends Asian markets tumbling

Stock markets across Asia crumbled yesterday as investors liquidated equities for US dollars – sending many of the region’s currencies to new lows against the greenback.

This came after a swathe of stimulus packages unveiled worldwide to stave off economic turmoil from the coronavirus pandemic failed to calm investors. Many bailed amid global curbs on movement and fears over whether the virus can be contained in some countries.

News of the European Central Bank’s massive €750 billion (S$1.2 trillion) economic rescue plan managed to prop up stock markets in Asia briefly yesterday before they sank again.

Leading the sell-off was South Korea, which plunged 8.4 per cent, followed by Taiwan, which lost 5.8 per cent. The Korea Exchange briefly suspended trading after its markets plummeted, tripping a circuit breaker.

The Straits Times Index plunged as much as 5 per cent before finishing down 4.7 per cent. Jakarta ended 5.2 per cent down, Australia shed 3.4 per cent, and Hong Kong slipped 2.6 per cent.

“The strong US dollar is slamming global capital markets like a sledgehammer,” said Mr Stephen Innes, global chief markets strategist at AxiCorp.

Concerns over a US dollar shortage sent the Japanese yen down as much as 1.4 per cent to 109.55 per dollar and the British pound dropped as much as 1.2 per cent to 1.1474, its weakest since 1985.

Against the greenback, the Singdollar weakened to the 1.45 level last seen in January 2017, and could drop to 1.475 by the third quarter as the Monetary Authority of Singapore is expected to ease monetary policy in April, said Mr Khoon Goh, head of Asia research at ANZ in Singapore.

“Companies are hoarding dollars and foreign investors are exiting equity and bond positions in Asia in the face of a deteriorating global economic outlook. In equities alone, foreign investors have pulled out almost US$26 billion (S$38 billion) so far this month, following a US$8.8 billion outflow in February,” he added.

Traders reported huge strains in bond markets as distressed funds sold liquid assets to cover losses in stocks and redemptions from investors, according to Reuters.

Benchmark 10-year sovereign bond yields in New Zealand, Malaysia, Korea and Singapore and Thailand surged.

“Not only central banks, but governments are throwing everything at the economy right now, but markets aren’t responding,” said chief strategist Luca Paolini at Pictet Asset Management.

The Monetary Authority of Singapore (MAS) yesterday announced a US$60 billion swap facility with the US Federal Reserve to ease the strain on businesses amid the virus fallout. MAS said it intends to draw on this swap facility to provide US-dollar liquidity to financial institutions in Singapore. It will be in place for at least six months

CIMB Private Bank economist Song Seng Wun noted that a stronger greenback would typically make local exports appear cheaper, but not at this juncture, as global supply chains have been affected. “Global demand is weaker, so a cheaper currency isn’t going to lift external demand,” he said.

“This is potentially the biggest global economic shock in our lifetime. For now, monetary policy is still the weapon of choice to contain the economic damage. Recession fears are priced in. But markets are still trying to gauge how deep, severe or protracted the global recession will be, and whether stimulus packages will help. But until the healthcare crisis is resolved, all these questions will remain unanswered, and the wild swings will continue,” Mr Song said.

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