KLSE Composite Index: Market Valuation
15.12.2011
KLSE Market PE Ratio 15.05
Div Yield 3.42%
Price/Bk Value 2.15
KLSE CI 1,464.11
15.12.2011
KLSE Market PE Ratio 15.05
Div Yield 3.42%
Price/Bk Value 2.15
KLSE CI 1,464.11
Earnings yield = EY = 1/PE = 1/15.05 = 6.64%
Risk free FD interest rate = 3.4%
Equity risk premium = 6.64% - 3.4% = 3.24%
Equity risk premium is the compensation investors require for holding stocks.
Equity risk premium = earnings yield (1/market PE) - the risk free rate.
More than 3.5%, market is undervalued
0.6% to 3.5%, market is fairly valued.
Less than 0.6%, market is overvalued
So, presently, by the above criteria of equity risk premium, the market is neither undervalued nor overvalued, and is at fair value.
Read also:
http://myinvestingnotes.blogspot.com/2009/07/when-is-market-over-valued.html
Risk free FD interest rate = 3.4%
Equity risk premium = 6.64% - 3.4% = 3.24%
Equity risk premium is the compensation investors require for holding stocks.
Equity risk premium = earnings yield (1/market PE) - the risk free rate.
More than 3.5%, market is undervalued
0.6% to 3.5%, market is fairly valued.
Less than 0.6%, market is overvalued
So, presently, by the above criteria of equity risk premium, the market is neither undervalued nor overvalued, and is at fair value.
Read also:
http://myinvestingnotes.blogspot.com/2009/07/when-is-market-over-valued.html
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