Wednesday, January 20, 2010
When to invest in STI
If ERP > 3.5%, we can invest in STI (Straits Times Index)
ERP = (1 / P/E) - 1yr SIBOR = EY - 1yr SIBOR
20/01/2010 ERP = (1/15.57)% - 0.92 = 5.5%
30/05/2012 ERP = (1/13)% - 0.586 = 7.1%
Abbreviations
ERP = Equity Risk Premium
P/E = Price Earnings Ratio (iShares MSCI Singapore Index (EWS))
EY = Earning Yield
SIBOR = Singapore Interbank Offered Rate (1Y SIBOR / MAS / SGLoan - Temp )
LCY = Local Currency
Reference
EWS P/E = 15.15
Earnings Yield = (1/ P/E)%
EY = 6.6%
https://masnetsvc.mas.gov.sg
One Year SIBOR = 1.69%
So ERP = 6.6% - 1.7% = 4.9%
If ERP > 3.5 invest STI.
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