Is Singapore’s Share Market on Sale Now?

Two Fridays ago on 20 July 2014, the Straits Times Index (SGX: ^STI) closed at 3,294 points, marking a 14-month high at that time according to local news publication The Straits Times.

With us starting a new month and with the index even higher now at 3,343 points, it’s perhaps natural to ask: Are Singapore’s shares cheap enough to invest in currently? One great way to answer this question would be to look at the number of shares in Singapore’s market that’s selling for below their net current asset values (NCAV).

Such shares are considered really cheap, like I once described:

“Those were shares in which investors could get a discount on current assets like cash, receivables and inventories net of all obligations. In other words, fixed assets like a company’s factories, machinery, and properties, were all thrown in for free. “

Mathematically, such shares would fulfil the following condition:

Market Capitalisation < (Total current assets minus total liabilities)

And interestingly, if they’re found in great quantities, it can be a good sign that Singapore’s share market is on sale. Here’s a chart showing how the number of NCAV bargains has evolved over time:

Source: S&P Capital IQ

Notice how the number of NCAV bargains peaked in the second quarter of 2009 (at 191), just after the STI had reached its lowest close of 1,457 points on 9 March 2009 during the depths of the Great Financial Crisis of 2007-09. With less than 800 shares listed in Singapore currently, it gives you an idea of how cheap the entire share market was back then.

As of yesterday’s close, the number of NCAV bargains in Singapore stands at 92. Although that’s certainly nowhere near as high as it was during the crisis, it’s also a far cry from the low of 44 shares selling below their NCAV that was found in the fourth quarter of 2007 – that was also the period in which the STI closed at its all-time high of 3,876 points on 11 October 2007.

So, looking at this data, my takeaway is that Singapore’s market is at a Goldilocks temperature – not too hot and not too cold.

Now here’s a word of caution regarding all the data above: There’s nothing in it which can tell us what the market’s going to do over the short-term. What the data can do is to give us a sense of where the market is at and also provide a rough gauge on how tough it may or may not be to find individual bargains. What it can’t do, is to allow us to time the market. After all, there’s no law saying that the highest number of NCAV bargains must be 191 or that the lowest must be 44.

The amount of bargains in Singapore’s share market is an important piece of news for you as an investor – but it’s also not the only interesting and important development about our local market you should know about. To keep up to date with what’s exactly happening in today’s market, 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 can also show how you can GROW your wealth in the years ahead.

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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 writer Chong Ser Jing doesn’t own shares in any companies mentioned.