SINGAPORE: Margin calls pushed the Singapore market further south on Tuesday even as most other Asian markets staged a recovery from the previous day’s bloodletting.

The Straits Times Index closed down 1.4% at 3,198.44, extending a 4.1% plunge on Monday.

Like the previous day, banks led losses with DBS Bank down 1.6% at S$32.75 and UOB shedding 1.7% to S$29.58 while OCBC Bank dropped 1.3% to S$13.84, hit by markets now expecting bigger rate cuts from the US Federal Reserve (Fed).

Japan’s Nikkei led the regional recovery, rebounding 10.2% after a record 12% dive a day earlier.

Australia’s S&P/ASX200 rose 0.4%, South Korea’s Kospi gained 3.3%, but Hong Kong’s Hang Seng slipped 0.3% while the Shanghai Composite Index edged up 0.2%.

So is this a good time to start bottom fishing?

Brokers here said that following Monday’s market rout - which globally wiped out trillions of US dollars of wealth in a single day - many investors were now being called on to top up their margin accounts, where stocks are bought with borrowed money.

“It will be a few more bear days before things stabilise,” said the head of a dealing team at a Singapore stockbroking house.

Markets across the world dived on Monday on fears of a US-led recession following disappointing economic data last week. Precipitating this was a global tech rout on concerns that the biggest-spending tech giants had little to show yet for their artificial intelligence (AI) investments.

Pressure mounted further when the Bank of Japan (BoJ) unexpectedly boosted interest rates for a second time, raising the spectre of a potential fall in Japanese imports that will impact the Japanese economy. This drove Japan’s Nikkei index to its worst day since the 1987 “Black Monday” crash on Wall Street.

As investors fled risk assets, bitcoin plummeted 11%, leading a sell-off in cryptocurrency and related stocks.

But the sell-off has raised the possibility - or hope - that the Fed could step in sooner than expected to cut US interest rates, which are at 23-year highs. Bond traders are now pricing in the possibility of a 50 basis point rate cut in September and multiple cuts through 2025.

While warning against jumping head first into the market at this juncture, there are many market experts who reckon the Monday sell-down was an overdone knee-jerk reaction.

Analysts said the markets were looking for an excuse to sell, and they got it from the BoJ rate hike resulting in the unwinding of the world’s biggest “carry trade”, in which investors borrowed hundred of billions in yen because of Japan’s low interest rates to fund investments in higher-yielding assets elsewhere.

Other triggers to the market meltdown were weak US manufacturing and jobs figures last week, rising tensions in the Middle East and a spate of disappointing Big Tech results.

Analysts like Thilan Wickramasinghe, head of research at Maybank Securities, said there has been a lot of froth in the market and a heavy dose of irrational exuberance, especially around themes like AI.

“So a healthy correction is not a surprise,” he pointed out. “The scale of it is sizeable, so there will be a lot of nervousness out there.”

That said, “the fundamental economic data out to the United States is pointing to a slowdown, not a recession. So I think it is too early to call it the end of the bull market”.

In the same vein, BlackRock Investment Institute noted in a report this week: “The Fed opened the door to a September rate cut last week, as we expected. Then the payrolls data stoked recession fears and market hopes for a large 50 basis point cut next month. We see this as another flip-flop in the market narrative with little evidence backing it.”

 - ANN