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25-09-2010, 01:27 PM
Teh Hooi Ling is resolutely quantitative, as I've always mentioned. She can take truckloads of data and numbers and then churn out amazing data and statistics! I really admire her on this point.
Problem is she always seems to take a "macro" view, and I wonder if these numbers and statistics really help an investor to invest better? I would still advocate being a business analyst and focusing on corporate fundamentals rather than having an overall view of the market like what she does. But to each his own.....
Business Times - 25 Sep 2010
SHOW ME THE MONEY
Shares some way from irrational exuberance of 2007
Comparison of prices in four regional markets shows that despite similar index levels, many shares are still below their peaks 3-4 years ago
By TEH HOOI LING
SENIOR CORRESPONDENT
I HAD lunch with a friend on Monday and he asked: 'Do you think stocks are undervalued now? Well, if you compare individual stock prices today with when the Straits Times Index was previously at this level - before the crisis - a lot of shares are still underwater. At the very least, the stocks I monitor are still below their 2007 levels.'
Is that true, I wondered. So I set out to find out. The Straits Times Index ended at 3,081.1 points on Thursday. The previous time it was near this level, prior to the global financial crisis, was on Jan 22, 2007.
So I compared all the Singapore Exchange listed stocks between the two dates. Here's what I found. Indeed, the majority of stocks in Singapore are now lower than their January 2007 levels - to be exact, 69 per cent of the equities in the market are still below their pre-crisis levels. And mind you, we are comparing the STI when it was just under 3,100 - not when it peaked at around 3,800. The median price decline is 26 per cent.
In terms of market cap, 56 per cent of the companies are smaller now compared with close to four years ago. The median decline in market cap is about 9 per cent.
Does the price decrease reflect the more difficult environment that companies are operating in? In other words, have earnings shrank, and as a result, are investors are less willing to value stocks at anywhere close to their previous levels?
I tallied the two measurements of valuation for stocks: price-to-book (PTB) ratio and price-earnings (PE) ratio. PTB ratio is the market price of a stock over the book value of its net assets. Book value used to be just based on the historical costs a company paid for its assets. But changes in the accounting rules in recent years have allowed companies to revalue their asset prices. So this measure may not be as useful as before. Still, it offers some insight into how much a stock is valued over the historical or market value of its assets.
PE ratio, meanwhile, is the stock price over the most recent year's earnings per share for the stock. Obviously, the higher these two measures are, the more highly valued the stock is.
Back in January 2007, the median PTB ratio for Singapore stocks was 1.32 times. As at Thursday, the figure was 0.99. That's a decline of 25 per cent.
As for PE ratios, the median in 2007 was 13.5 times. This week, stocks in Singapore were trading at 11.6 times their most recent financial year's earnings. In other words, stocks in Singapore on average are valued 14 per cent cheaper today than in 2007 in terms of earnings multiple.
Is this a phenomenon just in Singapore, or have other regional markets experienced the same thing?
Well, the performance of the Hong Kong market is similar to that of the Singapore market. The Hang Seng Index level that approximates today's 22,000 points was registered on June 28, 2007. Then, the index was at 21,938 points.
The drop in valuation in the Hong Kong market, vis-a-vis its similar level in 2007, appears deeper. For example, the median declines in PTB and PE was 32 per cent and 27 per cent respectively, compared with Singapore's 25 per cent and 14 per cent.
Hong Kong's market cap has also shrunk 17 per cent.
However, despite the compression in value, Hong Kong stocks today are still valued slightly higher than Singapore stocks. The median PTB of 1.17 times is higher than Singapore's 0.99 times, while its PE ratio of 12.4 times is higher than the Republic's 11.6 times.
I also took a look at other regional markets - Malaysia and Thailand. Malaysia's Kuala Lumpur Composite Index is trading at around its peak in the past three to four years. This is in contrast to Singapore, which is still some 20 per cent off its peak in the second half of 2007.
But even in Malaysia, 65 per cent of the stocks are still trading lower than their previous peak. The median decline is 17 per cent. The median valuations for Malaysian stocks are 0.74 times PTB, and 9.4 times PE. And that's still lower than the 0.93 times PTB and 11.8 times PE back in January 2008 when the KLCI was at 1,467 points. Thai stocks are now comparable to their previous peak in October 2007.
So do companies of a certain size suffer more in terms of valuation compression? In terms of PTB ratio, in both Singapore and Hong Kong, companies in the $100 million to $1 billion range have experienced the biggest plunge in value. The decline is in excess of 40 per cent in both countries.
As for PE ratio, the mega caps in Hong Kong suffered the most. Their PE ratios were depressed to just 13.2 times now, from 21.3 times back in 2007.
So back to my friend's question: Is the market undervalued now? Well, I'd say we are still some way from the irrational exuberance that was starting to grip the market back in early-2007.
The writer is a CFA charterholder
Problem is she always seems to take a "macro" view, and I wonder if these numbers and statistics really help an investor to invest better? I would still advocate being a business analyst and focusing on corporate fundamentals rather than having an overall view of the market like what she does. But to each his own.....
Business Times - 25 Sep 2010
SHOW ME THE MONEY
Shares some way from irrational exuberance of 2007
Comparison of prices in four regional markets shows that despite similar index levels, many shares are still below their peaks 3-4 years ago
By TEH HOOI LING
SENIOR CORRESPONDENT
I HAD lunch with a friend on Monday and he asked: 'Do you think stocks are undervalued now? Well, if you compare individual stock prices today with when the Straits Times Index was previously at this level - before the crisis - a lot of shares are still underwater. At the very least, the stocks I monitor are still below their 2007 levels.'
Is that true, I wondered. So I set out to find out. The Straits Times Index ended at 3,081.1 points on Thursday. The previous time it was near this level, prior to the global financial crisis, was on Jan 22, 2007.
So I compared all the Singapore Exchange listed stocks between the two dates. Here's what I found. Indeed, the majority of stocks in Singapore are now lower than their January 2007 levels - to be exact, 69 per cent of the equities in the market are still below their pre-crisis levels. And mind you, we are comparing the STI when it was just under 3,100 - not when it peaked at around 3,800. The median price decline is 26 per cent.
In terms of market cap, 56 per cent of the companies are smaller now compared with close to four years ago. The median decline in market cap is about 9 per cent.
Does the price decrease reflect the more difficult environment that companies are operating in? In other words, have earnings shrank, and as a result, are investors are less willing to value stocks at anywhere close to their previous levels?
I tallied the two measurements of valuation for stocks: price-to-book (PTB) ratio and price-earnings (PE) ratio. PTB ratio is the market price of a stock over the book value of its net assets. Book value used to be just based on the historical costs a company paid for its assets. But changes in the accounting rules in recent years have allowed companies to revalue their asset prices. So this measure may not be as useful as before. Still, it offers some insight into how much a stock is valued over the historical or market value of its assets.
PE ratio, meanwhile, is the stock price over the most recent year's earnings per share for the stock. Obviously, the higher these two measures are, the more highly valued the stock is.
Back in January 2007, the median PTB ratio for Singapore stocks was 1.32 times. As at Thursday, the figure was 0.99. That's a decline of 25 per cent.
As for PE ratios, the median in 2007 was 13.5 times. This week, stocks in Singapore were trading at 11.6 times their most recent financial year's earnings. In other words, stocks in Singapore on average are valued 14 per cent cheaper today than in 2007 in terms of earnings multiple.
Is this a phenomenon just in Singapore, or have other regional markets experienced the same thing?
Well, the performance of the Hong Kong market is similar to that of the Singapore market. The Hang Seng Index level that approximates today's 22,000 points was registered on June 28, 2007. Then, the index was at 21,938 points.
The drop in valuation in the Hong Kong market, vis-a-vis its similar level in 2007, appears deeper. For example, the median declines in PTB and PE was 32 per cent and 27 per cent respectively, compared with Singapore's 25 per cent and 14 per cent.
Hong Kong's market cap has also shrunk 17 per cent.
However, despite the compression in value, Hong Kong stocks today are still valued slightly higher than Singapore stocks. The median PTB of 1.17 times is higher than Singapore's 0.99 times, while its PE ratio of 12.4 times is higher than the Republic's 11.6 times.
I also took a look at other regional markets - Malaysia and Thailand. Malaysia's Kuala Lumpur Composite Index is trading at around its peak in the past three to four years. This is in contrast to Singapore, which is still some 20 per cent off its peak in the second half of 2007.
But even in Malaysia, 65 per cent of the stocks are still trading lower than their previous peak. The median decline is 17 per cent. The median valuations for Malaysian stocks are 0.74 times PTB, and 9.4 times PE. And that's still lower than the 0.93 times PTB and 11.8 times PE back in January 2008 when the KLCI was at 1,467 points. Thai stocks are now comparable to their previous peak in October 2007.
So do companies of a certain size suffer more in terms of valuation compression? In terms of PTB ratio, in both Singapore and Hong Kong, companies in the $100 million to $1 billion range have experienced the biggest plunge in value. The decline is in excess of 40 per cent in both countries.
As for PE ratio, the mega caps in Hong Kong suffered the most. Their PE ratios were depressed to just 13.2 times now, from 21.3 times back in 2007.
So back to my friend's question: Is the market undervalued now? Well, I'd say we are still some way from the irrational exuberance that was starting to grip the market back in early-2007.
The writer is a CFA charterholder
My Value Investing Blog: http://sgmusicwhiz.blogspot.com/