The Singapore bourse displayed more weakness, as it has fallen to levels not seen since the Freddie-Fannie crisis. The US market, however, fared much better due to the strengthening US Dollar, which helped to bring funds back onto American shores.

The market here was also hit by the falling Chinese market immediately after the Olympic curtain-raiser. It has fallen for many days without respite and the poor performance of the Shanghai bourse is definitely affecting Asian bourses per se.

In his National Day speech, Prime Minster Lee Hsien Loong said he expects the Singapore economy to slow in the second half of the year after the second quarter registered a growth of only 2.1%. To make things worse, Mr. Wee Cho Yaw also heightened fears when he said that the current crisis is the worst in 48 years, which dwarfs past downturns such as the 1973 oil shock, 1987 market crash, 1997 financial crisis and 2003 SARS.

It does sound bad, doesn’t it?

The situation looks bad because the origin of the entire problem lies within the US financial system – the world’s most important financial body. The globalization of economies has made it hard for anybody to be left out of the crisis and, thus, almost everybody engaged in the network owns derivative products issued by the major US investment banks. Equity funds, bond funds, sovereign funds and individuals have all placed bets on the financial derivatives popularly known as CDOs. To add to the problem, many of these players leveraged by up to 100 times and have all got themselves into trouble.

Once the worms are let out of the can, everybody within the system realized that each and every player owes somebody money used to bet on the CDOs. Lately, the three Singapore banks announced results that failed to live up to expectations mainly because of their investments in CDOs. As of today, there are no signs that the problem in the US has been resolved and that will lead to more uncertainties in the stock market.

The only cheer in the market comes from falling oil prices, which has fallen below US$120 per barrel and could go as low as US$110 per barrel. Taking the cue from oil prices, commodity prices fell too, leading to suggestions that the commodity Bull Run has ended. This will probably take some pressure off inflation and it is unlikely that the US and China governments will raise interest rates.

We need to be patient and wait for another round of selling. Prime Minister Lee has also said that the worst is not yet over for the US economy, which could bottom only in 2009.

There seemed to be some hope that the situation in China will turn around. Not long ago, at a China central government’s meeting, the policy of preventing the economy from overheating and goods from being overpriced, have been changed to that of keeping the economy growing at a fast pace, and controlling the prices of goods. Unfortunately, up till now, it’s only mere talk and no concrete steps have been implemented. Some of the hot funds and investors in China have already lost their patience. Earlier on, everyone was hoping that before the Olympics started, the central committee would do something to rescue the market. The opening ceremony of the Olympics has come and gone, still there is no rescue strategy whatsoever. This is why the market has plunged. This plunge shows a widespread loss of confidence.