Stay close to STI and its components for now

MORGAN Stanley in its outlook for Singapore a year ago noted that the correlation local blue chips have with the MSCI World Index over the previous 10 years was only 55 per cent. The conclusion was obvious: Singapore stocks may not be that affected by developed markets.

That weak correlation - or decoupling if you prefer - is set to be tested this week, after Wall Street's large losses last week. The S&P 500 fell 3.5 per cent to 2,002.33, its worst percentage drop since May 2012, while the Dow Jones Industrial Average dropped 677.96 points, or 3.8 per cent, to 17,280.83, its biggest decline since September 2011.

The reasons for the US weakness are unclear - falling oil prices have been offered as one though this is by no means convincing - but perhaps not surprisingly, given that the US central bank has repeatedly said it will print money to save the market if necessary. Few US analysts are panicking. Many in fact expect a rebound soon, confident that this is only temporary weakness.