Dear readers, the Singapore stocks benchmark indicator, the Straits Times Index (STI) stayed above the 3,000 mark for today (at least at this time in writing). At above 3,000 level, the Singapore stocks markets feel bullish especially since the 3,000 level was one that has not been seen by investors here since March 2020.
I wanted to know whether the Singapore stocks as generally indicated by the STI are expensive and I turned to the STI ETF (ES3.SI) where I looked at the Price-Earnings (PE) ratio of the ETF. The PE ratio of the STI ETF is 14.03. This PE to me is expensive as I would always think a reasonable still-attractive PE ratio of the STI ETF is 11.
And further, the financial corrections that happened in 2009 has not happened; it is always a certainty that the next stock markets corrections will happen as stocks markets will not keep heading north perpetually. The corrections did not happen last year even with Covid-19; the corrections may happen this year but the corrections will be bound to happen.
The lowest price to earnings ratio of the Straits Times Index (STI) was about 6 during the global financial crisis in 2008. The current price to earnings ratio of the STI is as per earlier mentioned, 14.3. If the Singapore Straits Times Index (STI) reach to a price-to-earnings ratio of 6 again in the upcoming recession, then STI would reach 3,000 multiplied by 6 divided by 14.3 = 1,283 level. This translates to an approximately 57.23% drop from the current STI level.
Is this possible? I would always think so if governments do not have viable solutions other than printing of money or Qualitative Easing to address the next financial correction.