Dear readers, Singapore Straits Times Index (STI) is to crash 50% and markets said so! What is happening?
Well, in yesterday’s post I shared that in the event of a financial markets meltdown, the Singapore Straits Times Index will crash to 1,339. This 1,339 level is about 50% of yesterday’s close of the Singapore Straits Times Index. Hence if the STI is to head to this 1,339 level, it is a 50% crash of the Straits Times Index (STI). A 50% crash of the Singapore stocks markets as the markets said so!
Why is it so? Well, let us take a look.
The STI closed at 2,463.29 on 22 Sep 20. The markets said so, the markets dictated so.
The Price-to-Earnings ratio of the STI as of 22 Sep 20 is 11.04 as could be inferred from the Price-to-Earnings ratio of SPDR Straits Times Index ETF. Again, the markets said so.
The Price-to-Earnings ratio of the STI was about 6 in the previous stock market correction. Again, a historical statement of fact as the markets said so.
So if we scale the STI as of 22 Sep 20 closing to a Price-to-Earnings ratio of 6 (during markets corrections), we obtain 2,463.29 x 6/11.04 = 1,339 as a level of the STI in the next stocks markets meltdown.
All the above sharing are all facts arising from the markets as the markets said so. It is not me (Tom K) who anyhow said the stocks markets will crash to 50% without any basis.
I mean, let us take another approach. Said if the STI closing on 22 Sep 20 at 2,463.29 was not based on the Price-to-Earnings ratio of 11.04 but of say Price-to-Earnings ratio of 8. Then, if the STI correct to the Price-to-Earnings ratio of 6 in the next financial markets meltdown, the Straits Times Index will reach 2,463.29 x 6/8= 1,848 rather than 1,339.
Against the backdrop of a lacklustre global economy amidst the Covid-19, can you imagine our Straits Times Index is still trading like normal times at Price-to-Earnings ratio of 11? This to me is overvalued.
And markets said so that the STI will correct to 1,339 at the next stocks markets financial crisis.
Instead of telling you that I will “See you at the top”, I would like to convey that I will “See you at the bottom”. Yes, at the bottom of the stocks markets corrections meltdown, when many of the investors have fled, leaving investors with lots of liquidity as they become the next Kings of the Stocks Markets!