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A Simple Guide To Future Returns For The Straits Times Index

Singapore’s most widely quoted stock market barometer, the Straits Times Index (SGX: ^STI), closed at 3,230 points last Wednesday. According to data from the index tracker SPDR Straits Times Index ETF (SGX: ES3), the STI was valued at 13.1 times trailing earnings then.

That’s somewhat lower than its historical average price-earnings (PE) ratio of around 16. Couple that with the fact that other international markets in America, UK, Germany, and Japan are valued at PEs of around 19, 15, 14, and 17 respectively, and it seems that shares in Singapore aren’t priced expensively.

To be sure, the valuations within the index’s 30 constituents do vary widely. For example, beer brewer Thai Beverage (SGX: Y92) is selling for 12.3 times its trailing earnings, while the corresponding figure for Singapore’s flagship carrier, Singapore Airlines (SGX: C6L), stands at 30.

So, despite the fact that individual shares can (and do) exhibit very different price-value relationships from each other, the market as a whole appears to be ostensibly cheap.

What does this mean for the overall market’s future returns though? Over the short-term, it tells us nothing: cheap shares are just as likely to fall further or rebound when measuring returns over 12 months.

Over the long-term however, buying shares when they’re cheap gives investors a great chance of achieving better returns.

That’s not to say that the STI will definitely make new heights from here. Future capital-returns for shares are largely governed by its earnings growth and its earnings-multiple (or PE ratio), and Singapore’s market barometer is no different.

Borrowing from The Motley Fool’s Morgan Housel, I’ve made a table showing a range of possible outcomes for the STI 10 years out using its current earnings figure of around $250 per share (working backwards from the STI’s points-level and the SPDR STI ETF’s data).

Simple guide to STI chart

Choose your own adventure, but use the range of figures along with a healthy dollop of common sense to form some expectation for the market’s future returns.

To quote Housel, “The next time you hear a market forecast, remember this table. The most honest forecast anyone can give for where stocks will be in 10 years is somewhere in there.”

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Chong Ser Jing doesn’t own shares in any companies mentioned.