Dear readers, against the current bearish stocks markets backdrop, the Straits Times Index is trading at a Price-to-Earnings ratio of 12 as of 14 Oct 2020. How do I know this ratio? Well, I infer this ratio from the Straits Times Index ETF (ES3.SI) which tracks the Straits Times Index. This Price-to-earnings ratio of ES3.SI was 12 as of yesterday (14 Oct 2020).
A Price-to-Earnings ratio of 12 means that investors pay a price which is equal to 12 times that of earning for Singapore stocks in general as of yesterday. I would think this price is a tad too high and investors are valuing Singapore stocks a tad too much. Imagine investors still paying 12 times for price to earning in this current stock market backdrop which is marked by Covid-19, recession for Singapore and bearish macro outlook for the world. The last time the Singapore stocks markets traded at this Price-to-Earnings was against a market backdrop which is unlike that we see now.
During one of the worst financial meltdown, the Straits Times Index traded at a price-to-earnings ratio of six. This means that the Singapore stocks markets could possibly crash to 50% of its current ratio in the next global financial stocks meltdown!
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