He also sees a pattern on Indian markets where the leadership will change from index to stock specific names.
The Indian market rallied as much as 22 percent so far in 2017 in dollar terms but it is unlikely that we could see a similar performance in the second half of 2017, Marc Faber, editor of The Gloom, Boom & Doom Report said in an exclusive interview with CNBC-TV18.
“In a world where we have artificially low-interest rates, the market rallied a little bit ahead of itself and could witness slight correction. But, long term story still looks promising,” he said.
He further added that equity markets around the world in 2017 saw a strong performance of 17-22 percent in Asian markets including India as well as in Europe.
“Hence, the second half would be difficult and I would not be surprised to see US markets going down or the leadership changing. So far the leadership in US markets is held by bellwethers such as Apple, Netflix, Facebook, Amazon, Google etc. and that is about to change.”
This pattern will also apply to Indian markets where the leadership will change, but the only difference is that the leadership would shift from index to stock specific names.
“Going into the second half, India will be more of a stock pickers market and not an index market,” said Faber. There could be some volatility in the short term, but, for the long term, the story looks good.
In the short term, the Indian market could correct here but given favourable fundamentals in long term, Faber is not overly bearish. But, as I said – “If I have to invest for 10 years and choose between Indian and US, I would chose India because it can outperform the US,” said Faber.
Commenting on the banking sector, Faber said that he is positive on financial stocks such as banks and particularly insurance companies. They might be going through near-term pain but eventually they will clean up their balance sheet.
The long-term potential for banking as a sector is huge but equally we have to understand there are huge technological changes underway in the world, explains Faber. Financial institutions who move along with technology will do well while other will not do that well.
Financial stocks which have underperformed for the year will outperform. Secondly, Feber said that in his asset allocation, I always have 25 percent in real estate.
“I think some real estate in India may not be fully attractive because it may be fully priced. But, on the other hand, there is still plenty of real estate which will now move up substantially in value,” said Faber.
Commenting on gold, Faber said that the price of the yellow metal went up by 8 percent last year against the US Dollar. It saw strong outperformance. This year, the gold is already up 7 percent against the USD whereby Dollar has lost 7 percent against the euro. In euro terms we are even.
“Some agricultural commodities are trading at the lowest point and could still bounce back in the second half. But, given the slowdown in growth around the world except India, I would be little bit cautious on industrial commodities,” he said.
Below is the verbatim transcript of the interview:
Anuj: You have been bullish on India for a long time, does goods and services tax (GST) reinforce your thesis, or are you worried about the near term disruption?
A: I am still positive about India in the long run. The stock market in US dollars has been one of the best performers this year. We are up over 22 percent though I think in a world where we have these artificially low interest rates, I think the market is maybe now a bit ahead of itself and may have a correction but the long-term still looks promising.
Surabhi: Indian market hit an all time highs and then they entered into a period of consolidation? We have been in this 200 point band for a while now. Do you see this continuing or do you see fresh highs again?
A: That is appreciated - the point. If we look at the equity markets around the world, in 2017 we had very strong performance in Asia and as I said in India and we had very strong performance in Europe, where many markets are up between 17 percent and 22 percent. So I think given the economic outlook in the world, the second half of the year will not bring about similar type of returns. You have to understand. Europe and the US essentially, almost in zero interest rate environment and to have this kind of performance, we have in the first half, from equity markets is an incredible performance. So my view would be that the second half will be more difficult and I wouldn't be surprised to see the US market going down or the leadership changing.
The leadership in America has been FANG stocks; Facebook, Amazon, Apple, Netflix, Google and similar kind of stocks and I wouldn't be surprised if these stocks were lagging in the second half of the year and the leadership will change and the same will occur in India where maybe the index is not moving much but within the market some stocks will perform well and others not so well. So in other words, it will be in the world in the second half and going forward a stock pickers market and not an index market.
Reema: You speak about the possibility of leadership change at the index level. So far it has been all the tech stocks like Amazon etc but what could take up the mantle from here on?
A: That is precisely the point I wish to know, what leadership will emerge around the world and replace the FANG stocks, the tech stocks. I am simply not yet sure and I need to watch the market for another two-three months before I could come to a conclusion.
Anuj: You have been in general bullish on emerging markets as well but where is India right now in the pecking order?
A: As I explained India has had the best performance this year or one of the best performances. Venezuela had a better performance; I should point out, from a very depressed level. So as I mentioned I think that the Indian market could correct here given the favourable fundamentals for the Indian economy longer term, I wouldn't be overly bearish and what we also have today in India is a relatively stable currency; the currency has actually appreciated this year and now the rupee may weaken somewhat but in general, as I said on your programme many times over the last six months, if I have to invest for ten years and I have to choose between the US and India. I would choose India because I think India will outperform the US. So I hope this answers your question. I cannot explain to you more than that.
Surabhi: Let's talk about banking because that is where the big fight is. The whole approach to resolving bad loans - that has changed. Now we have a time bound process in place, 12 accounts been chosen by the Reserve Bank of India (RBI). How do you read this and do you like Indian banks?
A: Basically I am positive about financial stocks; bank and especially insurance companies and eventually they will clean up their balance sheets and banking in India, in a country of the size of India and where banking is not yet -- hasn't proliferated very much. I believe the long-term potential is huge but equally we have to understand there are huge technological changes on the way in the world, just think of the retailing industry in America; when I started to work in 1970, two blue chip companies were CRS and JC Penney, both of them are about to die and so this technological changes will also change the way banking is carried out and financial institutions that understand these changes and will implement the technologies to accommodate these changes will do well and others in my opinion will not do particularly well.
Reema: Any other sectors that you are bullish on right now?
A: I still think that the financial stocks will be okay. They have underperformed for years and now they started to outperform, so that's the sector, second, in my asset allocation I always have 25 percent in real estate and I think that some real estate in India may not be particularly attractive because it is fully priced. On the other hand there is still plenty of real estate that in my view going to move up substantially in value and so I would essentially focus on real estate investments in India.
Anuj: Are you still a commodity bull?A: Commodities haven't performed very well but I would like to say this, the price of gold went up 8 percent last year against the US dollar. So it was essentially one of the strongest performing currencies. This year gold is up 7 percent against the US dollar whereby the US dollar has lost 7 percent against the euro. So in euro terms we are even but it hasn't been a poorly performing commodity and some agricultural commodities in my opinion are very low at the present time and that could easily rebound in the second half of the year but overall given the slowdown in growth around the world which is very different from India where there is kind of an acceleration of growth that is possible, around the world there is a slowdown, certainly in the US and so given that scenario I would be cautious about industrial commodities at the present time.