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How Much Further Will Singapore’s Stocks Fall?

A bear market is defined as one in which stocks have fallen by 20% or more from a recent high.

If you haven’t already heard, we’re in one at the moment – at its current level of 2,732 points (as of 4:15 pm), Singapore’s market barometer, the Straits Times Index (SGX: ^STI), is down by 23% from an April 2015 high of 3,550.

With stocks appearing to fall by the day, when is this going to end? How low can stocks go? There may be plenty of opinions out there, but I’ve yet to see any factual data based on historical facts.

So, let me fill in the gap, by using conditions from the Great Financial Crisis of 2007-09 as a guide.

Here are the lowest PE ratios that Singapore’s blue chips – the 30 stocks that make up the Straits Times Index – had carried during that tumultuous period (real estate investment trusts, business trusts, stocks that had not been listed, and stocks with negative earnings were all ignored):

Company Lowest PE ratio during financial crisis
DBS Group Holdings Ltd (SGX: D05) 4.6
United Overseas Bank Ltd (SGX: U11) 6.6
SembCorp Industries Limited (SGX: U96) 6.2
Keppel Corporation Limited (SGX: BN4) 4.9
Oversea-Chinese Banking Corp Limited (SGX: O39) 7.2
SIA Engineering Company Ltd (SGX: S59) 6.5
Singapore Exchange Limited (SGX: S68) 10.9
Singapore Telecommunications Limited (SGX: Z74) 8.4
Singapore Press Holdings Limited(SGX: T39) 9.3
Wilmar International Limited (SGX: F34) 7.5
SembCorp Marine Ltd (SGX: S51) 7.5
StarHub Ltd (SGX: CC3) 9.3
Singapore Airlines Ltd (SGX: C6L) 6.2
Comfortdelgro Corporation Ltd(SGX: C52) 10.0
Singapore Technologies Engineering Ltd (SGX: S63) 11.6
Golden Agri-Resources Ltd (SGX: E5H) 0.65
Noble Group Limited (SGX: N21) 2.4
SATS Ltd (SGX: S58) 7.8
UOL Group Limited (SGX: U14) 2.1
City Developments Limited (SGX: C31) 5.3
CapitaLand Limited (SGX: C31) 3.1
Yangzijiang Shipbuilding Holdings Ltd (SGX: BS6) 3.8
Thai Beverage Public Company Limited (SGX: Y92) 9.7
Jardine Cycle & Carriage Ltd (SGX: C07) 4.4

Source: S&P Capital IQ; author’s calculations

Next, here’s a table showing how much the stocks above have to fall if they are currently carrying their crisis-era valuations:

Company Stock price change from current levels assuming a crisis-era PE ratio
DBS -51.0%
UOB -32.3%
SembCorp Industries -16.4%
Keppel Corporation -19.2%
OCBC -23.3%
SIA Engineering -72.5%
Singapore Exchange -49.2%
Singapore Telecommunications -42.2%
Singapore Press Holdings -52.9%
Wilmar International -33.9%
SembCorp Marine -8.5%
StarHub -42.0%
Singapore Airlines -73.3%
Comfortdelgro Corporation -53.5%
Singapore Technologies Engineering -34.2%
Golden Agri-Resources -99.0%
Noble Group N.A.
SATS -61.0%
UOL -74.4%
City Developments -43.6%
CapitaLand -72.7%
Yangzijiang -35.6%
Thai Beverage -41.6%
Jardine Cycle & Carriage -63.7%
Average Decline -47.7%

Source: S&P Capital; author’s calculations; data as of 6 January 2015 (Noble currently has negative earnings)

As you can see, the blue chips in Singapore have a long, long way to fall if the market’s mood were to be as sour as it had been during the financial crisis. Bear in mind though that I’m not trying to make any predictions here – I’m merely letting history be a guide.

Now, some of you might think it is important to ask how likely it is for stocks to fall to those pitiful valuations that were seen during that painful period for the world’s financial markets and economy. But, what is far more crucial here, in my opinion, are your answers to the following questions:

  • Do you have a plan to handle further declines in stocks?
  • What about a plan to invest if stocks start climbing?
  • Do you know what prices make for good values for the stocks you’re looking at? (A stock that has fallen hard need not necessarily be a bargain.)
  • How long is your preferred investing time horizon?
  • Do you have the resources to enable you to invest at your preferred time horizon?
  • Can your personal finances withstand a further decline in stocks?

I can’t answer these for you because I don’t know your personal circumstances – you know yourself best. If you find yourself being preoccupied with how much further stocks can decline, cast that thought aside and figure out the questions above instead – they are likely to be far more important determinants of your eventual investing returns than whether there is more room for stocks to fall or not.

If you'd like more investing insights as well as the latest news about Singapore's stock market, you can get both from The Motley Fool's free weekly investing newsletter, Take Stock Singapore. Written by David Kuo, Take Stock Singapore can help you grow your wealth in the years ahead. So, come sign up here!

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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.