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How Cheap Is the Singapore Stock Market Currently?

Sudhan P.
Skyline of Singapore CBD during the day

Are you looking to invest in Singapore shares to take advantage of the volatile market conditions? Then you have to look no further.

Here, we will explore two ways to find out if the Singapore stock market is cheap right now. The first method is to compare the market’s current price-to-earnings (PE) ratio to the market’s long-term average PE ratio. The second approach involves looking at the number of net-net stocks in the stock market.

With that, let’s dive right in.

PE valuation method

Since it is difficult to get the past daily PE ratios of the Straits Times Index, the PE ratios of SPDR STI ETF (SGX: ES3) can be used as a proxy. The SPDR STI ETF is an exchange-traded fund (ETF) that tracks the fundamentals of the Straits Times Index (SGX: ^STI).

As of 16 August 2019, the SPDR STI ETF had a PE ratio of 10.3. Here are some of the other important PE ratios that we need:

  1. The long-term average PE ratio: The STI’s average PE ratio from 1973 to 2010 was 16.9;
  2. An instance of a high PE ratio for the STI: Back in 1973, the index’s PE ratio hit 35; and
  3. An example of a low PE ratio for the STI: At the start of 2009, the index was valued at 6 times trailing earnings.

Based on the data above, we can see that Singapore stocks are cheaper than average right now. It’s worth noting that the latest PE of 10.3 is the lowest it has been for some time.

Net-net stocks method

In this method, we will look at the number of net-net stocks available in the local stock market. To know what a net-net stock is, you can check out the explanation here. The theory goes that if there is a large number of net-net stocks than usual in the stock market, it could mean that stocks are cheap at that moment.

The following is a chart that shows the net-net stock count in Singapore since 2005:

Source: S&P Global Market Intelligence

When the Straits Times Index is at a peak (such as in the second half of 2007), the net-net stock count is low. The reverse is also true: When the Straits Times Index is at a low (like in the first half of 2009), the net-net stock count is high. In the second half of 2007, the net-net stock count was below 50 while in the first half of 2009, the figure was at the peak of almost 200.

As of 16 August 2019, there were 100 net-net stocks. This sits comfortably between the net-net stock count’s peak-and-trough from 2005 till today.

The Foolish takeaway

From the two different valuation methods, we can see that Singapore shares are not very expensive, but they not extremely cheap either.

More reading

Motley Fool Singapore 2019