Economic forecasts seem to suggest better prospects for 2011. The International Monetary Fund (IMF) upgraded its 2010 global GDP growth forecast to 4.6 per cent recently, citing robust growth in Asia and renewed private demand in America. Growth is projected at 4.3 per cent for next year.

The Ministry of Trade and Industry (MTI) for Singapore had also raised its economic forecast three times this year, with the official growth for 2010 projected at 13 to15 per cent.

The upbeat projections may bode well for companies that are proxies to the recovery, but market attention is still centred on corporate earnings.

While the second quarter earnings report card showed good earnings growth, the momentum appears to be slowing, and may signal slower earnings in the third and fourth quarters.

The outlook for the rest of the world also appears mixed, with expectations of a slower second half.

Recent American economic data showed the recovery pace has slowed.

The UBS AG index showed global forecasts falling short in July, making June and July the worst two-month period since the 2008 recession.

Meanwhile, developed economies are cautious about raising interest rates from record lows amid concern that the global recovery will falter.While the Straits Times Index (STI) managed to cross the 3,000 mark recently, it has since slipped below again. It needs to stay above the closely-watched 3,000 mark for the uptrend to continue.

Good corporate earnings is crucial to take the STI above 3,000 points but as corporations get cautiously optimistic on the prospects, it could rein in the upside momentum for now.

Similarly, the risks on the downside are also fairly limited as valuations are not demanding at current levels. For example, the STI is currently trading at only 14.2 times of this year’s earnings and 13 times of next year’s earnings. The S&P 500 is only trading at 12.9 times of this year and 11.2 times next year’s earnings. For medium to longer-term exposure, blue chips prices are not expensive and offer decent yield of about 3 per cent.