Dear readers, as I have predicted, the 2,500 level of the Straits Times Index seems a pretty good support level with the Straits Times Index inching up the 2,500 mark for two consecutive days after the Index went below the 2,500 level for the first time in several months on Monday 3 Aug 2020.
The last time the Straits Times Index reached the level of 2,500 some years back was in Feb 2016. Now, the Straits Times Index reached the 2,500 mark, DBS stock traded at $19.83. Back in Feb 2016, when the Index was trading around 2,500 level too, DBS stock traded at about $14 or some 30% discount off the current stock price of DBS.
Hence, set in the above context, you should know why I think the Straits Times Index seems still on the high side as it seems that this level of 2,500 was contributed by the good performance of the highest Straits Times Index constituent stock in DBS. And we must not forget the Straits Times Index is now trading against the backdrop of Covid-19 and recession for Singapore and the world.
As such, I would held the view the Straits Times Index would go all the way to 2,000 level in an all-out stock market correction. In fact, I have also shared in my previous post why the 1,700 mark for the Straits Times Index is also possible based on historical Price-to-Earnings ratio of the Straits Times Index.
In fact given the 2,500 level mark now and looking at history (in 2016) and assuming DBS stock should trade 30% discount off, applying 30% discount off the 2,500 level of the Straits Times Index, we would obtain a Straits Times Index level of 1,750 too.
Hence, based on the above two school of thoughts: one looking at Straits Times Index historical Price-to-Earnings ratios and the other looking at the relationship between DBS stock price and the Straits Times Index, the Straits Times Index could reach 1,700 to 1,750 in the next global stocks markets corrections next!