Poll of experts: We're hit, but we believe in S'pore fundamentals

"IMAGINE you are in a cinema and someone shouts 'Fire!'

"Your first reaction is to run to the exit and save your life, right?" said Mr Suan Teck Kin, an economist with UOB.

That is what's happening worldwide, with leading stock indices off 4 per cent to 7 per cent on Monday.

The bloodletting continued in Asia yesterday. Japan's Nikkei closed 5.7 per cent lower, India's Mumbai exchange closed 9.8 per cent down. Hong Kong fell 8.7 per cent and so did China with Shanghai closing 7.2 per cent down.

The same is happening in Singapore (the Straits Times Index fell 6 per cent on Monday, and 1.73 per cent yesterday) though there is less of an inferno.

The smoke is a few doors away (in the US). Should Singapore react and run?

No, say economists and analysts. You should have faith in the Singapore economy.

Mr Joseph Tan, a strategist at Fortis Bank said there was no clear trigger that set off the "vicious panic selling".

"But it is the coming together of news of a US recession, the subprime crunch and the recent losses posed by Citigroup and Merrill Lynch," he said, referring to two of the world's biggest financial institutions.

Harsh reality

Mr Tan said people were waking up to the reality that they could start losing money if they did not exit the market.

"And when one person starts to sell, others follow," he said.

What's more dangerous is that the selling is not being driven by retail investors, but by hedge funds and investment banks with illiquid securities and an array of valueless assets.

"What you see is not a panic of the public," Mr James Sinclair, a well known US gold trader told The New York Times (NYT). "This is a panic of the sophisticated."

Mr Suan feels losses can be contained. "But investors are losing confidence in the (US) economy," he said.

The impact of multi-billion dollar bleeding US financial institutions is greater - on markets and economies - than most realise.

Robust Economic Analysis managing director Mr P K Basu said banks were seen to be financial providers in an economy.

"When they become dysfunctional and do not have the capacity to grease the wheel of the financial system of the economy, the economy slows down," he said.

Mr Suan added that troubled banks which were not able to secure funding from other institutions would normally turn to the central bank for help.

"And if these troubled banks don't have the cash to lend to consumers or corporations to make a living, it will have negative effects.

"Consumers will find borrowing difficult and (this will) affect their purchasing power.

"Corporations will have trouble making investment decisions," he said.

Despite the lack of optimism reflected in the stock market selloff, experts polled by The New Paper are calm.

There is hope. They feel investors have "oversold", or overreacted.

Globally, the broad international selldown is driven by fear more than fact, reported NYT yesterday.

"I don't think it's warranted by the fundamentals,'' Mr Edward Yardeni, an independent strategist, told NYT.

"The resilience of the global economy in the face of a credit crunch has been impressive."

Locally, Mr Suan said Singapore was in a way shielded from the adverse effects.

"We (Singapore) are doing well. Projects like the integrated resorts and the Formula One race indicate that people are investing and the economy is thriving.

"Jobs are chasing Singaporeans and not vice versa," he added.

Mr Suan has "faith" in the (Singapore) economy. Its fundamentals are strong enough to weather this storm, he said.

Strong demand

Also, Asian economies were benefiting from the intra-trade and strong demand from India and China today, said Mr P K Basu.

He said this would help insulate the region.

Mr P K Basu likened the panic selling to a similar crisis in the early 1990s.

The US economy was also sluggish then but Asian economies were insulated as they were experiencing a steady 10 per cent to 15 per cent export growth (at that time).

"Asian economies were trading with one another and it helped weather the storm some 20 years ago," he said.

Mr Tan, Mr Suan and Mr PK Basu agree that the markets would rebound soon. So is it a good time to buy and take advantage of bargain counters?

"The market can be irrational," Mr Suan advised. "Let it play out for a while. For the time being, stand aside and let the stampede through."

» Irrational reaction to market turmoil? - Hope