Stock market unwinding may have further to go, say analysts

US recession fears, geopolitical uncertainties likely to add to volatility

- Angela Tan

The carnage across global stock markets this week is forcing investors here and elsewhere to take a hard look at their portfolios in the light of concerns over the United States economy.

Stock markets across the AsiaPacific plunged on Aug 5, driven by fears of a possible US recession, a tech stock sell-off and a surging yen.

The Japanese Nikkei 225 index plummeted 12.4 per cent, marking its steepest single-day drop since the Black Monday crash of October 1987, but it has since bounced back and closed up 1.6 per cent at the midday break on Aug 9. It finished 0.6 per cent higher at market close.

The Straits Times Index in Singapore tumbled more than 4 per cent on Aug 5 but clawed back more than 1.6 per cent to close at 3,261.83 on Aug 8.

The unease in Asia sent the Dow Jones Industrial Average down 2.6 per cent on Aug 5, but it too has rallied, closing up 1.8 per cent on Aug 8.

Evidence of weaker growth momentum has been building, particularly across Europe and China, for some time, noted Goldman Sachs' strategy guru, Mr Peter Oppenheimer.

But it was the US July employment report that focused attention on the risks in the world's largest economy.

The rise in the jobless rate to 4.3 per cent sparked fears that the US Federal Reserve and other central banks might have been too slow to cut interest rates, in turn causing a stronger-than-expected economic contraction.

These anxieties have been compounded by a punishing unwinding of carry trades, said Mr Oppenheimer.