STI Closing: 3,368.16
PE10: 15.7

For background, see this.

The STI’s been having a strong showing lately. Question is, is it overvalued?

Well, compared to the last time the STI was at this level (sometime in early 2007), the STI PE10 then was 30.4 and your return would have been a terrible -2.2%p.a. (capital gains only) for the next five if you’d bought the index then. Throw in inflation and even your dividends wouldn’t have saved you. Of course, this was in an environment with easy credit around the world and everyone was drinking from the proverbial punch bowl with wild abandon.

So, what’s the answer today? Well, the environment is certainly a lot more cautious today. There isn’t that heady, giddy feeling of your taxi driver and cleaning lady piling their life savings into stocks. Having said that, a 15.7 PE10 doesn’t guarantee fantastic real returns either.

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