(May 6): We know that the world’s stock markets are correlated and move in lockstep, especially during periods of heightened volatility and uncertainties. For instance, if the US market suffers a massive selloff overnight, you can almost be certain that Asian markets will open sharply lower and vice versa.
This positive correlation has only strengthened with globalisation and technological advancement, with information being disseminated widely and instantaneously. Financial markets are more closely integrated than ever before in history.
Chart 1 tracks the historical movements of the FBM KLCI, Straits Times Index and Standard & Poor’s 500, which highlight their increasingly positive correlations.
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