Market price-earnings ratio at three-year high

The price-earnings (P/E) ratio hit a three-year high toward the end of 2013, indicating that the stockmarket has become comparatively risky for investment.
The ratio, which is the current market price divided by the earnings per share, rose to 15.07, which means the stocks are overpriced.
As a rule of thumb, investors are normally better off buying a stock with a low P/E ratio than one with a high ratio, as they are getting more earnings for their money.
Hikes in individual share prices and a decline in earnings by listed companies amid a prolonged political turmoil resulted in the rise in market P/E ratio, according to Akter H Sannamat, managing director of Union Capital, a non-banking financial institution.
After a downward trend for two consecutive years following 2011's market crash, the market witnessed an upward trend in the just concluded year. DSEX, the key index of the Dhaka Stock Exchange, closed 2013 with 4,266 points, registering a gain of 4.3 percent in the course of the year.
On the other hand, political turmoil left a negative impact on almost every sector, reducing their level of profitability.
“At the back of the political instability credit growth and import declined, while loan provisioning rules were tightened -- casting negative impact not only on the financial sector but also on the production and manufacturing sectors.”
Many of the listed companies will see a downward trend in their earnings for the year 2013, he said.
“As the market P/E is counted by a company's current share price compared to its per-share earnings, it is expected that the market P/E will be higher given the situation of last year.”
The highest market P/E ratio was 30.51 on December 5 of 2010, which came crashing down to 13.68 at the end of 2011 and 12.07 in 2012.