At its current level which is around 2600, the STI is around 78.5% from the bottom made in March this year. I went to compare the 1 year to 4 years return made from buying the STI after it has plunged from a peak and recovered 78.5% from the previous 2 bottoms prior to this current recovery. Those two bottoms took place in March 2003 at the level of around 1213 and August 1998 at the level of around 805. The results can be seen below.
As only the data for 2 bottoms were used, this is only meant to be used as a rough gauge since I would have prefer to analyze more data. Besides, past performance does not indicate that the future will always turn out to be the same way.
It can be seen that it still may not be too late to buy in as all of the returns are positive except for the annual return after 4 years from buying in after the bottom made on August 1998. Given that the STI is still a distance away from the previous peak of 3900 made in October 2007, I still think that it is still not too late to buy in. However, the returns will definitely not be as great as compared to if one has bought much nearer to the bottom but it will be still be rather significant. Do be prepared to ride out any volatility though as the stock market recovers back to its previous peak.
Posts
It's my belief STI will need at least 4-5 years to regain its previous peak of 3,900. Since this peak was reached in Oct 2007, this would imply at least Oct 2011 or beyond. This is because companies need time to rebuild their Balance Sheets and kick-start their business engines back to normality first.
ReplyDeleteCheers,
Musicwhiz
Hi Musicwhiz,
ReplyDeleteI share your view that companies need time to rebuild their balance sheets and kick start their business engines back to normality first. Besides, we have not seen that the earnings of the companies have returned to normalcy yet.
I do noticed that there is one common theme that often props up in financial news and that is kind of worrying. And this theme is that Asia is seen to be leading the next revival for the financial markets. As such, we can see that the Asian stock markets had a remarkable recovery so far and they are outperforming the US stock market by a significant amount. This is a worrying trend to me since this can means that there can be some amount of irrational optimism by investors who are buying into this theme at work. On the other hand, this can also be an opportunity since the US market is still relatively undervalued. As such, I will not be too surprised if STI can hit 3900 within the next 2 years.
Kay