Shadow of fresh euro crisis darkens day for markets

SINGAPORE shares suffered another mauling yesterday as deepening unease over a potential crisis in the euro zone sparked a global selldown in stocks.

Crude oil prices also tumbled to their lowest levels since 2009, while the euro weakened further to a nine-year low against the greenback.

The uncertainty could continue to cast a shadow on markets for some time since the root cause of investors’ worries has no easy solution, analysts said.

Investors bailed out of stocks yesterday on renewed fears of a Greek exit from the euro, which has called into question whether the euro zone can remain intact.

Greece goes to the polls on Jan 25, and a victory for the opposition could see the country leave the currency union. “The bigger problem, however, is contagion – if larger countries such as Italy or Spain decide to follow in Greece’s footsteps,” Phillip Futures analyst Howie Lee told The Straits Times.

“That would be the end of the euro zone. It would spark a crisis on the same level as the global financial crisis in 2008.”

A relentless fall in crude oil prices owing to lacklustre demand and a global supply glut also clobbered Wall Street, with the Dow Jones Industrial Average diving 1.9 per cent on Monday night.

Prices of benchmark Brent crude oil traded in London fell to just above US$51 yesterday, edging closer to the psychologically significant US$50 threshold.

Although lower oil prices are expected to boost global economic growth, the flip side is that it reflects weaker economic demand, analysts noted.

“Cheap oil is good for transportation and businesses, but people are looking at the other side of the coin and are more concerned about demand,” said remisier Desmond Leong. “The worry is that economies are no longer growing and may even be shrinking, which is why they would need less oil.”

Mr Allan von Mehren, chief analyst at Danske Bank in Copenhagen, told Bloomberg: “We don’t know where the breaking point is, where the oil price gets so low it triggers a financial crisis somewhere that could then spread.”

The jitters spilled over to major markets in Asia yesterday.

In Singapore, the benchmark Straits Times Index lost 1.4 per cent, or 46.33 points, to 3,281.95 yesterday. It has lost 2.6 per cent since the start of the week.

Tokyo sank a sharp 3 per cent, Hong Kong fell 1 per cent and Seoul lost 1.7 per cent yesterday. Shanghai closed flat.

Analysts said uncertainty is likely to linger in the markets. Remisier Charles Chua said that oil prices may stabilise by the end of March as US shale oil producers gradually reduce output, which could help calm markets.

The euro zone, however, is a different story. “The euro zone was an impossible dream to begin with – its problems are chronic and longstanding. Those will not be so easily resolved,” he said.

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