STI looking cautiously bullish

THE Straits Times Index (STI), a capitalisation weighted index that tracks the performance of the top 30 companies listed on the Singapore Exchange, has been trading near price-to-book (PB) ratio of one despite US indices reaching ballooned PB ratios of above 3.3 in recent record high trading days. This suggests a clear sign of valuation disparity.

Driven by real estate investment trust (Reits), developers and financials, STI has recovered from the bottom of 2,993 in January to this year's peak of 3,415 in April and recent high at 3,285. Similarly, recent data shows signs of Singapore economy stabilising and possible bottoming out after five quarters of declining growth.

Catalysed by growth in finance and telco industries, the Singapore economy grew 0.5 per cent year-on-year in the third quarter, slightly better than the previous quarter. While non-oil domestic exports showed a decline of 9.6 per cent, there was an improvement compared to a drop of 14.7 per cent in the last quarter. The unexpected 4 per cent growth in manufacturing output in October has also further strengthened the positive sentiment in the market.