Singapore stocks might be too cheap, analysts say

Low prices are not justified.

Singapore stocks are currently trading near trough valuations, which is not warranted given the local market’s strong fundamentals.

According to a report by OCBC, current valuations might be unjustifiably low because investors pricing in greater uncertainty ahead.

“Based on current levels, the STI is trading at 11.9x earnings, 1.1x book and with an average dividend yield of 4.3% for FY16. These levels are now close to the levels seen in the previous two crises in 2008/09 and 2011 and we believe this is not warranted,” OCBC said. 

This presents an opportunity to accumulate quality stocks as recent earnings cuts have already taken into account slower corporate earnings growth ahead.

“While there are some risks of further economic growth and earnings cuts in 2016, we believe this is partly reflected in current market valuations, and the region is not in danger of entering a recessionary period as in previous crises,” the report said.