"The strength seen in the US market will continue; while it is too late to buy the US markets, says ace investor Marc Faber. At the same time he says that it is too early to commit huge investments to emerging markets yet. “We have a very large valuation discrepancy between the US and the emerging markets. The growth in emerging economies will be slower in the next three-five years than it has been in the past three-five years, so I think that there will be still be some disappointment,” he said in an interview to CNBC-TV18. Farber who is also the editor & publisher of The Gloom, Boom & Doom Report is not gung-ho on the performance of global equities and foresees muted returns from this asset class in the next few years. Those betting on equities won’t fetch more than 5 percent returns going ahead, he added. While global investors have been fretting about the impact on markets if the US Federal Reserve withdraws its monetary stimulus sooner than later, Faber reiterates that even if the Fed decides to taper the bond programme, it would be done very lightly. In fact, he feels that the Fed will keep broadening asset purchases for few more years to support the markets. “When they introduced QE1 in November 2008, my view was this would be a permanent status and that we would up to QE99 and they wouldn’t abandon tapering,” he elaborated. Meanwhile, sharing views on the India he pointed out Indian equities have seen severe wealth destruction in dollar terms from 2008. He advises market participants to shift focus from macro data like GDP growth etc to individual companies. Faber sees opportunity in midcap and small cap stocks in India. He prefers betting his chips on private sector banks currently. just India. Now we have a very large valuation discrepancy between the US and the emerging markets. So what you buy today - Do you continue to buy the US that may still rise or do you gradually move to emerging economies? I think it is too late to buy the US and it is probably too early to make a major commitment into emerging economy stock markets, because the growth in emerging economies will be slower in the next 3-5 years than it has been in the past 3-5 years, so I think that there will be still be some disappointment.
Q: If it is not the developed market equities and it is not the emerging market equities where would you put your money to use at current levels?
A: I think what people hate today is essentially to hold cash and my sense is that the return from equities will be very muted in the next few years. Maybe you will make something like 5-10 percent per annum, but even that would be a very high return considering that in the western world - in eurozone, in America and in Japan you have essentially zero interest rates. So if equity investors make 5 percent per annum, it is actually a very higher return.
Q: We have the non-farm payrolls data coming out from the US today. In your opinion what is the taper timeline that we could be working with and will emerging markets such as India see the same amount of volatility and uncertainty that we just saw a couple of months earlier in the year?
A: When they introduced Quantitative Easing one (QE1) in November 2008, my view was that this would be a permanent status, in other words that we would go up to QE99 and that they would not abandon the asset purchases. Now there has been talk about tapering for the last 6-8 months, but in my view if they taper, it will be a very cosmetic gesture and on any sign of further economic weakness, or if asset markets decline again like the stock market drops 10-20 percent they will actually increase the asset purchases. My sense is that the Federal Reserve will continue to buy assets in order to try to support the asset markets.
Q: Do you think the taper fears are overdone by the markets?
A: The market has already adjusted, because they introduced QE3, QE4 in the summer of 2012. At the time the 10-year Treasury note yield was 1.43 percent. We are now at 2.8 percent on the 10-year. In other words, they have both assets at the end of November over a trillion dollars already this year and yet interest rates have gone up; in other words it seems that the Federal Reserve has lost control of the bond market. They can keep short-term rates indefinitely at essentially very low rate, but there will be of course some economic damages arising from zero interest rate policies.
Q: I know you are not very gung-ho on emerging markets as a whole, but what is your view on India in specific? Would you have a target for the Nifty that you can share with us? The domestic cue that we are working with would be the state assembly elections and the national elections later next year. Would that change your opinion or maybe help your view towards India in specific?
A: We are down in India from the early 2008 high by 40 percent in US dollar terms, in other words adjusted for the currency movements. We are not down 40 percent in rupee terms, but in dollar terms. I think that people pay too much attention to GDP growth figure etc and should rather focus more on individual companies. The problem in American economies is that a lot of money has flowed in and it has boosted the valuation of essentially very liquid stocks or big market cap stocks whereas smaller cap stocks are reasonably priced. So I think there is an opportunity in India, whether the index will go up a lot or not that I do not know, but for the active investor that does not buy the index, I see an opportunity.
Q: This week in itself we have seen the Indian markets outperform the rest of the emerging market on the back of the domestic event, the state election verdict in anticipation of a favourable verdict there. If it actually does materialise is there a possibility that Indian markets might outperform the other emerging markets?
A: I just explained to you that the Indian market is still down 40 percent in dollar terms from the 2008 high; whereas other markets like Indonesia, Thailand, Malaysia and Philippines were up until May by about 4 times from the 2009 lows. So we had an underperformance of India compared to other emerging economies until recently. And we have this pool of international liquidity that is driven by asset allocators, so they look at India - they see a relative poor performance and they see some marginal improvement in the macroeconomic environment of India. So money is flowing out of countries like Indonesia, Philippines, Thailand into India.
Q: Do you have any select stocks or sectors that you are taking positions if in case within India?
A: I think banks are very inexpensive.
Q: Within that would it be private or public?
A: Private. "
Source: moneycontrol.com
Q: If it is not the developed market equities and it is not the emerging market equities where would you put your money to use at current levels?
A: I think what people hate today is essentially to hold cash and my sense is that the return from equities will be very muted in the next few years. Maybe you will make something like 5-10 percent per annum, but even that would be a very high return considering that in the western world - in eurozone, in America and in Japan you have essentially zero interest rates. So if equity investors make 5 percent per annum, it is actually a very higher return.
Q: We have the non-farm payrolls data coming out from the US today. In your opinion what is the taper timeline that we could be working with and will emerging markets such as India see the same amount of volatility and uncertainty that we just saw a couple of months earlier in the year?
A: When they introduced Quantitative Easing one (QE1) in November 2008, my view was that this would be a permanent status, in other words that we would go up to QE99 and that they would not abandon the asset purchases. Now there has been talk about tapering for the last 6-8 months, but in my view if they taper, it will be a very cosmetic gesture and on any sign of further economic weakness, or if asset markets decline again like the stock market drops 10-20 percent they will actually increase the asset purchases. My sense is that the Federal Reserve will continue to buy assets in order to try to support the asset markets.
Q: Do you think the taper fears are overdone by the markets?
A: The market has already adjusted, because they introduced QE3, QE4 in the summer of 2012. At the time the 10-year Treasury note yield was 1.43 percent. We are now at 2.8 percent on the 10-year. In other words, they have both assets at the end of November over a trillion dollars already this year and yet interest rates have gone up; in other words it seems that the Federal Reserve has lost control of the bond market. They can keep short-term rates indefinitely at essentially very low rate, but there will be of course some economic damages arising from zero interest rate policies.
Q: I know you are not very gung-ho on emerging markets as a whole, but what is your view on India in specific? Would you have a target for the Nifty that you can share with us? The domestic cue that we are working with would be the state assembly elections and the national elections later next year. Would that change your opinion or maybe help your view towards India in specific?
A: We are down in India from the early 2008 high by 40 percent in US dollar terms, in other words adjusted for the currency movements. We are not down 40 percent in rupee terms, but in dollar terms. I think that people pay too much attention to GDP growth figure etc and should rather focus more on individual companies. The problem in American economies is that a lot of money has flowed in and it has boosted the valuation of essentially very liquid stocks or big market cap stocks whereas smaller cap stocks are reasonably priced. So I think there is an opportunity in India, whether the index will go up a lot or not that I do not know, but for the active investor that does not buy the index, I see an opportunity.
Q: This week in itself we have seen the Indian markets outperform the rest of the emerging market on the back of the domestic event, the state election verdict in anticipation of a favourable verdict there. If it actually does materialise is there a possibility that Indian markets might outperform the other emerging markets?
A: I just explained to you that the Indian market is still down 40 percent in dollar terms from the 2008 high; whereas other markets like Indonesia, Thailand, Malaysia and Philippines were up until May by about 4 times from the 2009 lows. So we had an underperformance of India compared to other emerging economies until recently. And we have this pool of international liquidity that is driven by asset allocators, so they look at India - they see a relative poor performance and they see some marginal improvement in the macroeconomic environment of India. So money is flowing out of countries like Indonesia, Philippines, Thailand into India.
Q: Do you have any select stocks or sectors that you are taking positions if in case within India?
A: I think banks are very inexpensive.
Q: Within that would it be private or public?
A: Private. "
Source: moneycontrol.com
