Is the STI index getting expensive?

To answer the above question which was burning inside me for quite some time, I compiled earnings from the companies which make up 92% of the total market of the STI, annualized them and accorded weightage to the earnings according to the individual company's market capitalization.

I only managed 92% (or 28 companies out of the 48 index stocks) of the market cap as it is a very tedious process to labour into each and every one of the company's quarterly reports, but nevertheless, I think 92% would give us a good feel how expensive the index is now.

So here is the conclusion..... (drum roll......)
(a) Earnings Index - 199.71
(b) STI Index caa 17 Jan 07 - 3037.66
(c) Price-to-Earnings (PE) of STI = (a) / (b) = 15.21
(d) Earnings Yield = 1/(c) = 6.6%

Ok, so the stock market is not quite cheap nowadays, but not terribly expensive either. Most important when the STI inches towards the 5% earnings yield point (equivalent to PE of 20) or about 3900 points, that would be a red light signalling SELL SELL SELL.

We should target to get out even before that, that leaves us with a couple of hundreds points to go before alarm bells sounds, so tread carefully now, ...