Dear readers, will the Straits Times Index (STI) correct to 1,700 in the next stocks markets meltdown? Already, the STI is now at 2,529.82; just a few notches above the 2,500 near-term support that I have set for the STI. Hence, 1,700 as a Straits Times Index performance is about 800 points down the current STI level or about 33% correction from the current STI level. Will this level be possible?
Before I continue, let us just recall what SG Stocks Investing has shared with readers in many previous posts which is none other than that Tom K myself has a target of 2,000 for the Straits Times Index (STI) when stocks markets undergo the next stocks markets meltdown. The next meltdown is often described by many as more-than-a-decade in waiting since 2008. A 2,000 STI level is about 20% southing of the current Straits Times Index.
But if you think 2,000 is not possible, I would like to highlight to you that when the next stocks markets correction comes, the Straits Times Index could even go to below 2,000! That is around 1,700 level for the Straits Times Index (STI). But you may ask why 1,700?
Well, the STI ETF (ES3.SI) is now trading at a price-to-earnings of 8.88 as of 30 Jul 2020. If we are to recall, the price- to-earnings ratio of the Straits Times Index (STI) was about 6 during the global financial crisis in 2008. Hence if we are to do the mathematics, with a current STI level of 2,529.82 corresponding to a price-to-earnings ratio of 8.88, the STI level would be about 1,700 with a price-to-earnings ratio of 6. Assuming the STI reach the same price-to-earnings ratio of about 6 as with the previous stocks markets corrections in 2008, the STI is likely to correct to 1,700 or about 33% stocks markets corrections.
Or considering what many have said that the next global financial crisis could be even more severe than the 2008 global financial crisis, then 1,700 as a level may be even considered high. In this case, will the Straits Times Index reach 600 in the next stocks markets crisis? Again, you may ask why the 600 level?
Well, the Straits Times Industrial Index (the former equivalent of the Straits Times Index) reached 620.04 at the lowest in the last Singapore recession in 1985. In light that some have commented that the 2020 recession for Singapore could be even worse than the 1985 recession, the Straits Times Index could reach lower than the 620.04 in 1985.
But be it 1700 or 600 bottom-most level for the STI when the next global stocks markets corrections come, it is not important to investors. What is important to investors is to have your warchest ready to invest in the stocks markets when many investors have fled to take the most advantages that the stock markets present then.