Straits Times Index hits 4-year high

The Straits Times Index (STI) closed at 2,022.99 yesterday, a four-year high.

At this level, I think that the Singapore stock market is near the top of its fair-value range. One and a half years into the current bull market, I think that is a reasonable level for it to be in. I expect the rally to continue for a little while longer, bringing the market into slight overvaluation territory, before the bull run ends.

In my opinion, the Singapore market is in a sideways trend for the longer-term. It has to adjust to the fact that Singapore is transforming from a high-growth economy to a mature, lower-growth one. This means that even as corporate earnings rise, P/E multiple contraction will keep prices from rising substantially. Fresh all-time record highs for the STI are unlikely in this sort of environment.