PE10 Chart (historical)
Chart Details
What I have here is the STI's PE10 (in blue and plotted on Y-axis on the left) versus the STI's close (in grey and plotted on the Y-Axis on the right).
At a glance, it's fairly obvious that when the PE10 is low (below 15x), the market tends to run up fairly strongly. Based on this, it should be no surprise that 2017 was a good year as the PE10 fell from about 15x to roughly 11x from 2015 to early 2016.
Of course, in times of credit expansion, expensive can get more expensive. This was what we saw from 2003 when the PE10 was above 20x and it still ran all the way up to over 30x in 2007.
Once again, the PE10 shouldn't be used in isolation and forecasting for the near future. It should be viewed as a indicator that merely increases your chances of being right.
Background
I first read about the PE10 in Benjamin Graham's 'The Intelligent Investor' and through Robert Shiller's work on the Cyclically-Adjusted Price-to-Earnings Ratio for the S&P 500. Unfortunately, I couldn't find one for the Straits Times Index (STI) so I decided to make one myself.
Some years ago, I found a dataset for the STI close at the start of the month and its corresponding PE ratio that goes back to 1993. Ever since then, I've been faithfully (ok, I've had my lapses) compiling data at the start of each month in an Excel file.
The data I get is from Bloomberg.
The relationship between PE10 and future returns is not perfect but so far, I've found that anything below a PE10 of 12.5x leads to future 5-year Compounded Annual Growth Rates (CAGR) of at least 6%.
You can check out all my blog posts on the STI's PE10. (link here)
If you wish to check out the data yourself, you may do so (for non-commericial purposes only!) by clicking on the "Download Data" button.
The file is in a csv format and contains: (1) the date, (2) STI close, (3) PE, (4) average 10 year earnings (E10), and (5) "implied earnings" which is calculated based on the STI close and PE.
Versions
V 0.1 - Right now, it only displays the current PE10, average PE10 and median PE10 in a table.
V 0.2 (3 Aug 18)- Chart created to display PE10 vs. STI.
Future Updates
- PE10 by date and corresponding 5-year CAGR.
- Automatically scrape the data and update the files each month. Right now, it's still somewhat manual =(