MENU

2 Fascinating Insights about Booms and Busts in Singapore’s Share Market

Two

Earlier today, I shared an interesting chart (reproduced below) that tracked how expensive or cheap Singapore’s share market is by looking at the number of shares selling below their net current asset values (NCAV). That is, shares that had market capitalisations lower than its total current assets sans total liabilities.

NCAV bargain chart

Source: S&P Capital IQ

It’s fascinating to see a strong correlation between the number of NCAV bargains that appear at the peak and trough of the Straits Times Index (SGX: ^STI), Singapore’s most widely-followed share market barometer.

The index had closed at a high of 3,876 points on 11 October 2007 and that was the quarter whereby Singapore’s share market showed the least number of NCAV bargains at 44. At the Straits Times Index’s bottom of 1,457 points on 9 March 2009, the number of shares selling below their NCAV reached a peak of 191 shortly after in the second quarter of 2009.

But that’s not all that’s fascinating about the share market’s recent boom and bust. Here’s one more: Individual companies can still be either bargains or expensive mistakes regardless of how cheap or pricey the overall market can be

When the Straits Times Index closed at its October 2007 peak, NCAV bargains were really scarce in the quarter. Today, the index is still sitting on a 16% loss at its current level of 3,257 points after close to seven years. Yet, you have individual shares like Dairy Farm International Holdings (SGX: D01), Jardine Cycle & Carriage (SGX: C07), and Vicom (SGX: V01), that have doubled in price or more in the same time frame. They are not extremely rare cases either as there are more than 30 such shares out of more than 750 shares listed in Singapore’s market.

Share

Price: 11 October 2007

Price: Today

% Change

Dairy Farm

US$5.10 US$10.41 104%

Jardine C&C

S$20.20 S$43.88 117%

Vicom

S$1.78 S$6.19

248%

Straits Times Index

3,876 3,257

-16%

Source: S&P Capital IQ

On the other hand, when NCAV bargains were widespread near the quarter which 9 March 2009 belonged – the day the Straits Times Index closed at a bottom of 1,457 points – there were also shares that performed poorly despite the index having more than doubled since; Delong Holdings (SGX: B1N) and Yong Xin International Holdings (SGX: CX5) are just two examples out of more than 50.

Share

Price: 9 March 2009 Price: Today % Change

Delong Holdings

S$0.595 S$0.275 -54%
Yong Xin S$0.075 S$0.036

-52%

Straits Times Index 1,457 3,257

124%

Source: S&P Capital IQ

Over the long-term, a company’s corporate performance is an important driver of its share price return. Dairy Farm International Holdings, Jardine Cycle & Carriage, and Vicom were cheap bargains at that time because of their subsequent profit growth. Meanwhile, Delong Holdings and Yong Xin International Holdings were expensive mistakes because the two loss-making outfits had simply not demonstrated any improvement in their businesses.

Share

EPS: 11 October 2007* EPS: Today*

Dairy Farm

US$0.18 US$0.37

Jardine C&C

US$0.95 US$2.54

Vicom

S$0.166

S$0.328

EPS: 9 March 2009*

EPS: Today*

Delong Holdings -RMB0.69

-RMB0.25

Yong Xin -RMB0.058

-RMB0.063

*EPS stands for earnings per share

Source: S&P Capital IQ

For investors in individual companies, it pays to remember this: No matter how pricey or cheap the overall share market may appear to be, that doesn’t mean their investments would automatically do well subsequently – that would ultimately depend on how well the companies’ businesses eventually perform.

Click here now for your FREE subscription to Take Stock Singapore, The Motley Fool's free investing newsletter. Written by David Kuo, Take Stock Singapore tells you exactly what's happening in today's markets, and shows how you can GROW your wealth in the years ahead.  

The Motley Fool's purpose is to help the world invest, better. Like us on Facebook  to keep up-to-date with our latest news and articles.

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