THE Straits Times Index (STI) recovered momentarily to 3,047 before resuming its downtrend. Indeed, inflation has been a central theme in the market's volatility, and central bankers are likely to face significant hurdles in carrying out their monetary policies to tackle inflation amid a slowing global economy.
In a rising rate environment, bonds, equities and even commodities will be negatively impacted. The inflation fighting process is going to be a painful one for the markets and is unavoidable.
From a valuation perspective, STI is now trading on a forward PE of 14 times, which would translate into a market earnings yield of 7.1 per cent. The Business Times journalist Teh Hooi Ling published a column on June 21 highlighting that STI had traded in the PE range of 12.4 to 12.9 times in 1980 and 1981 when inflation was 8 per cent. With Singapore's inflation expected to hit 6 per cent this year, the theoretical level for the STI is 2,639 if we use 12.5 times PE as a benchmark.
We are maintaining our view that the STI will fall further, and are holding on to our target objective of 2,890 as an intermediate target. Fortunately, a temporary respite may be on the horizon as Stochastic and RSI are forming bullish divergences. It is likely that end-of-the-quarter window dressing at end-June could buoy markets somewhat in the very short term.
By KEN TAI CHEE MING, technical analyst, Kelive Research
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June 24, 2008
CHART POINT
Intermediate target for STI remains 2,890
THE Straits Times Index (STI) recovered momentarily to 3,047 before resuming its downtrend. Indeed, inflation has been a central theme in the market's volatility, and central bankers are likely to face significant hurdles in carrying out their monetary policies to tackle inflation amid a slowing global economy.
In a rising rate environment, bonds, equities and even commodities will be negatively impacted. The inflation fighting process is going to be a painful one for the markets and is unavoidable.
From a valuation perspective, STI is now trading on a forward PE of 14 times, which would translate into a market earnings yield of 7.1 per cent. The Business Times journalist Teh Hooi Ling published a column on June 21 highlighting that STI had traded in the PE range of 12.4 to 12.9 times in 1980 and 1981 when inflation was 8 per cent. With Singapore's inflation expected to hit 6 per cent this year, the theoretical level for the STI is 2,639 if we use 12.5 times PE as a benchmark.
We are maintaining our view that the STI will fall further, and are holding on to our target objective of 2,890 as an intermediate target. Fortunately, a temporary respite may be on the horizon as Stochastic and RSI are forming bullish divergences. It is likely that end-of-the-quarter window dressing at end-June could buoy markets somewhat in the very short term.
By KEN TAI CHEE MING,
technical analyst,
Kelive Research
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