(31-07-2019, 09:46 AM)Bibi Wrote: [ -> ] (30-07-2019, 09:26 PM)karlmarx Wrote: [ -> ]But if there are two similarly undervalued companies, why not buy the one on your home ground?
I used to have similar thinking as u. But this time round i will not hesitate to put my money in USA stocks if there are 2 similarly undervalued companies. Because in the end, US stocks will far outperform Spore ones based on historical indices charts.
Let's take a look at their numbers and see what they tell us.
1. S&P vs STI, 2010 to Present
Absolute returns, dividends excluded:
S&P Jan 2010 to Present: 170%
STI Jan 2010 to Present: 11%
P/E ratio:
S&P, Jan 2010: 20
S&P, Present: 22
STI, Jan 2010: 18
STI, Present: 14
The point that some have highlighted about the inferior returns of STI is well noted.
S&P's present valuation is not a lot higher than in the past, so these constituent companies must be earning more. STI's valuation is lower than before, but even if the multiple increased at the same pace at S&P's, its returns will still have lagged S&P.
So, it looks like S&P companies are earning more than STI companies. What is the reason for this?
2. S&P vs STI, 2001 to 2010
Absolute returns, dividends excluded:
S&P, Jan 2001 to Jan 2010: -13%
STI, Jan 2001 to Jan 2010: 38%
P/E ratio:
S&P, Jan 2001: 29
S&P, Jan 2010: 20
STI, Jan 2010: 22
STI, Present: 18
So now the tables are turned. Those who bought S&P during 2000 would'be cursed, while those that bought STI cheered.
Again, what is explanation for what we are seeing here? I do not have an answer. But I think it is worth thinking about.
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Some comments:
1. My takeaway from this simple exercise is that it is not correct to assume that one market is more likely to perform better than the other. Therefore, I do not think it is wise to assume that, say, S&P will outperform STI again for the next 10 years, and then proceed to put your money on it. There has to be some rationale for why some markets outperform others. If I were to put my money on S&P, I must know why it is more likely to outperform STI.
2. STI's p/e ratio has been on a downtrend for 20 years. Will it return to its 'historical average?' I do not know. Given the varying levels of prosperity for the different industries, it might be better that -- as I have mentioned previously -- investors make specific bets on particular industries that they are confident of performing, instead of diversifying across all industries through an index.
In other words, if you want to do well in Singapore's market, you have to put your money on the promising (probably our big 3 banks?), and avoid the duds/laggards (which in recent years, are the O&G stocks).
3. There are no easy answers. If you are a DIY investor, you have to do your own homework, which, in this case, is finding the best market to buy an equity index. This is not something that I've tried to figure out.
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https://www.ceicdata.com/en/indicator/si...e/pe-ratio
https://www.multpl.com/s-p-500-pe-ratio/table/by-month