Sow My Seeds

Have you ever wondered whether the Singapore market is considered cheap or expensive, compared to the rest of the world?

To compare, we take a look at the PE ratios of major indices around the world.
 
PE ratio is one of the oldest and most frequently used metrics. It is calculated by taking the index or stock price and dividing this by its total earnings per share. This provides a measure of the price being paid for the earnings. It is used by most investors as a quick way to tell if an index or stock is cheap or expensive. In general (but not conclusive), the lower the number, the cheaper the index or stock.


If you wish to find out more on PE of indices, you can read this article:
Where can I find the P/E ratios for the Dow and S&P 500?

Below are the PE ratios of various indices, sourced from Bloomberg:

Rank	Index	Continent	Country	PE Ratio
1	Hang Seng	Asia-Pacific	Hong Kong	10.82	Cheapest
2	STI	Asia-Pacific	Singapore	12.36
3	Shanghai Comp	Asia-Pacific	China	16.76
4	DOW JONES	America	America	17.59
5	Malaysia KLCI	Asia-Pacific	Malaysia	18.36
6	Nikkei 225	Asia-Pacific	Japan	19.76
7	S&P 500	America	America	20.04
8	Thai SET	Asia-Pacific	Thailand	20.43
9	Nifty 50	Asia-Pacific	India	21.49
10	DAX	Europe	Germany	22.05
11	ASX 200	Asia-Pacific	Australia	23.65
12	CAC 40	Europe	France	23.94
13	Jakarta Comp	Asia-Pacific	Indonesia	27.93
14	NASDAQ	America	America	31.76
15	FTSE 100	Europe	United Kingdom	49.80	Most Expensive
			Average P/E Ratio	22.45

*PE Ratios as of Monday 18 Jul 2016. Ratios that are less than the average are highlighted in pink.

It truly surprised me that Singapore's STI came up in the top 3, with a PE ratio of 12.36. The only market considered cheaper than us by PE standards was the Hong Kong market. The Shanghai Composite trialed behind us at 16.76.

By far, the most expensive market in the list was the UK market at 49.80! This is equally surprising given that Brexit had given the index some knocking. Nasdaq, US's second largest exchange, came up as the second most expensive market at 31.76, perhaps due to it's high dominance of tech stocks (eg. Google, Facebook, Apple, Microsoft).

Using STI's PE For Benchmarking

While one would think that stocks such as UOB or Jardine C&C are expensive stocks (based on price), well, now we can use STI's PE ratio (12.36) as a benchmark to check whether a particular stock is cheap or expensive. UOB & Jardine C&C's PE ratio are:  9.8 and 15.7 respectively.

To conclude, it's comforting to know that Singapore's market is one of the cheapest markets around, giving us more confidence to invest in our very own exchange.