The above from Bloomberg BusinessWeek.
The rationale:
- The higher the PE, the lower the Earnings Yield, the less attractive the valuations are;
- The higher inflation, the higher the interest rates, the more attractive is the risk free alternative (fixed deposit) for investing.
In Malaysia the PE is around 18 (at least, that is what I read recently).
The inflation is officially about 2%, I guess it is around 5-7%.
In other words, according to the Rule of 20, I think that shares are slightly overvalued.
calvintaneng
For Malaysia P/E is 18? Yes and no. For Blue Chips like Nestle & Dutch Lady P/E might be as high as 30. To some P/E stands for "Punter's Expectation."
P/E is thrown out of the window. So to these gamblers P/E is irrelevant.
But for Deep Value Hunters There Are Still Some With P/E 5 to 8 around if you will take the trouble to sift out the gold from the trash.
Yes, rising interest rates will not be good for stocks or properties. However, we still can dig deeper to uncover the next undervalued gem or gems.
2014-05-13 20:02