IMF Lifts 2010 Global Growth Outlook, Says Double-Dip Unlikely

Someone said STI is like this one....

BOJ drops interest to zero

As strong yen hits outlook, bank sets up $79b fund to fight deflation

TOKYO

The Bank of Japan (BOJ) also said it would establish a ¥5 trillion ($79 billion) fund to buy Japanese government bonds, commercial paper and other asset-backed securities, stealing a march on the United States Federal Reserve in providing a fresh dose of economic stimulus. The BOJ also retained its soft loan facility worth ¥30 trillion for banks.

The yen weakened to almost 84 against the US dollar in a knee-jerk reaction to the BOJ news, but later rebounded to 83.40 on short-covering, slightly stronger than before the announcement.

Stock market sentiment was more positive, with the benchmark Nikkei 225 index jumping 1.5 per cent to close at 9,518.76 after having spent much of the day in the red.

For months, the central bank had eschewed government calls for more decisive action. But as concerns heightened about weakening growth in the Japanese economy — the world’s third-largest, after the US and China — the BOJ carried out what its governor Masaaki Shirakawa described as “comprehensive monetary easing”.— In a surprise move, Japan’s central bank yesterday lowered its benchmark overnight rate target to a range of 0 per cent to 0.1 per cent, a small absolute change from its previous target of 0.1 per cent but a large symbolic slide into an age of zero interest rates.

Sm Counters r not moving actually we r not so worried...

@ least if mkt hv over bot & suddenly hv corrections, they wun drop much...

Rotational play lor...

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Shares some way from irrational exuberance

By Teh Hooi Ling Senior Correspondent I HAD lunch with a friend on Monday and he asked: 'Do you think stocks are undervalued now? Well, if you compare individual stock prices today with when the Straits Times Index was previously at this level - before the crisis - a lot of shares are still underwater. At the very least, the stocks I monitor are still below their 2007 levels.' Is that true, I wondered. So I set out to find out. The Straits Times Index ended at 3,081.1 points on Thursday. The previous time it was near this level, prior to the global financial crisis, was on Jan 22 2007. So I compared all the Singapore Exchange listed stocks between the two dates. Here's what I found. Indeed, the majority of stocks in Singapore are now lower than their January 2007 levels - to be exact, 69 per cent of the equities in the market are still below their pre-crisis levels. And mind you, we are comparing the STI when it was just under 3,100 - not when it peaked at around 3,800. The median price decline is 26 per cent. In terms of market cap, 56 per cent of the companies are smaller now compared with close to four years ago. The median decline in market cap is about 9 per cent. Does the price decrease reflect the more difficult environment that companies are operating in? In other words, have earnings shrank, and as a result, are investors are less willing to value stocks at anywhere close to their previous levels? I tallied the two measurements of valuation for stocks: price-to-book (PTB) ratio and price-earnings (PE) ratio. PTB ratio is the market price of a stock over the book value of its net assets. Book value used to be just based on the historical costs a company paid for its assets. But changes in the accounting rules in recent years have allowed companies to revalue their asset prices. So this measure may not be as useful as before. Still, it offers some insight into how much a stock is valued over the historical or market value of its assets. PE ratio, meanwhile, is the stock price over the most recent year's earnings per share for the stock. Obviously, the higher these two measures are, the more highly valued the stock is. Back in January 2007, the median PTB ratio for Singapore stocks was 1.32 times. As at Thursday, the figure was 0.99. That's a decline of 25 per cent.

As for PE ratios, the median in 2007 was 13.5 times. This week, stocks in Singapore were trading at 11.6 times their most recent financial year's earnings. In other words, stocks in Singapore on average are valued 14 per cent cheaper today than in 2007 in terms of earnings multiple.

Is this a phenomenon just in Singapore, or have other regional markets experienced the same thing?

Well, the performance of the Hong Kong market is similar to that of the Singapore market. The Hang Seng Index level that approximates today's 22,000 points was registered on June 28, 2007. Then, the index was at 21,938 points.

The drop in valuation in the Hong Kong market, vis-a-vis its similar level in 2007, appears deeper. For example, the median declines in PTB and PE was 32 per cent and 27 per cent respectively, compared with Singapore's 25 per cent and 14 per cent.

Hong Kong's market cap has also shrunk 17 per cent.

However, despite the compression in value, Hong Kong stocks today are still valued slightly higher than Singapore stocks. The median PTB of 1.17 times is higher than Singapore's 0.99 times, while its PE ratio of 12.4 times is higher than the Republic's 11.6 times.

I also took a look at other regional markets - Malaysia and Thailand. Malaysia's Kuala Lumpur Composite Index is trading at around its peak in the past three to four years. This is in contrast to Singapore, which is still some 20 per cent off its peak in the second half of 2007.

But even in Malaysia, 65 per cent of the stocks are still trading lower than their previous peak. The median decline is 17 per cent. The median valuations for Malaysian stocks are 0.74 times PTB, and 9.4 times PE. And that's still lower than the 0.93 times PTB and 11.8 times PE back in January 2008 when the KLCI was at 1,467 points. Thai stocks are now comparable to their previous peak in October 2007.

So do companies of a certain size suffer more in terms of valuation compression? In terms of PTB ratio, in both Singapore and Hong Kong, companies in the $100 million to $1 billion range have experienced the biggest plunge in value. The decline is in excess of 40 per cent in both countries.

As for PE ratio, the mega caps in Hong Kong suffered the most. Their PE ratios were depressed to just 13.2 times now, from 21.3 times back in 2007.

So back to my friend's question: Is the market undervalued now? Well, I'd say we are still some way from the irrational exuberance that was starting to grip the market back in early-2007.

The writer is a CFA charterholder.

Actually if you follow his buy on dip call, you buy STI ETF hoot big big sure win one!