Saturday, June 2, 2018

Is this a right time to evaluate Singapore stocks for trading Opportunity?


Cheaper or Expensive?

A stock market is “cheap” or “expensive” depends on its valuation. 
Valuation is calculated by the price-to-earnings (P/E) ratio. For an individual stock, computing the P/E ratio involves dividing a company’s share price by its earnings per share. Singapore Stock Blog

There are two methods to simplify our investing decision in getting a better decision or finding which one is cheaper or expensive:
1. To compare the market’s current price-to-earnings (PE) ratio to the market’s long-term average PE ratio.
2. To determine the number of net-net stocks in the market.





First Method: In this method, we have to current PE ratio with long-term average PE ratio. The local stock market can be represented by the Straits Times Index (SGX: ^STI). It consists of the 30 biggest stocks in Singapore. Since it is difficult to get the past daily PE ratios of the index. On14 May 2018, the SPDR STI ETF had found a PE ratio of 11.6. The long-term average & STI’s average PE ratio from 1973 to 2010 was 16.9 and hit 35 as a high PE  ratio and a low PE ratio for the STI: At the start of 2009, the index was valued at 6 times its trailing earnings.
Based on the data, it is realistic to say that stocks in Singapore are cheaper than average now. Stock recommendation


Second Method: In this method, we measure the number of net-net stocks available in the local market because market capitalization of this stock is lower than its net current value. And it is calculated by using this formula:

Net current asset value = Total current assets – Total liabilities

It is an appropriate theory as investors can get a discount on the company’s current assets, such as cash, after clearing off all liabilities. 
If a large number of net-net stocks than usual can be found in a stock market at a certain point in time, then stocks would be cheapest at that moment. Stock Tips



From the above chart, we can observe an inverse relationship - when the STI is at a peak, the net-net stock count is low, and when the STI is at a low, the net-net stock count is high. we noted some points from the finding of the graph;
1. Firstly, we saw the net-net stock count fall to a low of below 50 for second-half of 2007 when the STI reached a peak before the Great Financial Crisis struck.

2. Secondly, we saw when the net-net stock count hit a high of nearly 200 in first-half of 2009 and it was during this time that the STI reached its bottom during the crisis.

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