Did The Stock Market Just Bottom?

On 21 January 2016, the Straits Times Index  (SGX: ^STI) closed at a low of 2,533 points, representing a decline of some 28.7% from a 52-week high of 3,550 that was reached in April 2015.

But ever since the index reached that January low, it seems to me that the “mood” of the market has been changing.

I may be wrong, but I’ve been seeing more positive news reports about the global financial markets since that day. For instance, the world’s largest pension fund has started buying stocks and the famed investor Mark Mobius had recently said that irrationality in China’s stock market is causing bargains to appear.

The Straits Times Index is 4% higher than where it was in 21 January 2016 at yesterday’s close of 2,645 points. Some 70% of its 30 constituents are also sitting on gains over the same period. In fact, eight of those companies have seen gains of more than 10% from 21 January 2016 to 16 February 2016.

The eight are Noble Group Limited (SGX: N21)Jardine Cycle & Carriage Ltd (SGX: C07)Wilmar International Limited (SGX: F34), SembCorp Industries Limited (SGX: U96), StarHub Ltd (SGX: CC3), Singapore Telecommunications Limited (SGX: Z74), Golden Agri-Resources Ltd (SGX: E5H), and Ascendas Real Estate Investment Trust (SGX: A17U).

Company Return: 21 Jan 2016 to 16 Feb 2016
Noble 19.6%
Jardine Cylce & Carriage 18.7%
Wilmar 17.4%
SembCorp Industries 14.6%
StarHub 14.1%
SingTel 12.1%
Golden Agri-Resources 11.9%
Ascendas REIT 11.7%

Source: S&P Global Market Intelligence

This raises what some might think is an important question: Has the market bottomed?

Sadly, I do not have the answer to that question and in fact, I do not think the question is even that relevant. I think the more important question investors should be asking is: How would a company’s business be performing a decade from today? If you believe that a business is going to be much bigger over the next decade than it currently is, the recent market decline could be a great opportunity to start investing in that company.

Also, instead of worrying when the market is going to bottom, wouldn’t it be better to start researching companies and finding out if there are significant discrepancies between their values and their stock prices? So, I do not know if the market has bottomed. But I do know that some big stocks in Singapore have really cheap valuations now.

For instance, Keppel Corporation Limited (SGX: BN4) is trading at 6 times trailing earnings at its current price of S$5.18; Hongkong Land Holdings Limited (SGX: H78) is at 0.5 times its tangible book value at its share price of US$5.75 now; and Hutchison Port Holdings Trust (SGX: NS8U) is offering a 10% distribution yield with its share price of US$0.43 at the moment.

Although not every stock with a low valuation may be real bargains right now, I am quite sure it’s a lot easier to find genuine bargains in the current market environment as compared to one in which stocks have climbed by great amounts.

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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 Stanley Lim owns shares in Keppel Corporation, Jardine Cycle & Carriage and Wilmar International.