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Last Updated : Jan 23, 2016 01:19 PM IST | Source: CNBC-TV18

Sensex could fall to 20K; China growing at 2-4%: Marc Faber

Marc Faber, editor and publisher of “The Gloom, Boom & Doom" report, says the Chinese economy is growing at a much slower pace, closer to 2-4 percent, that's what its government is indicating.

Marc Faber, editor and publisher of “The Gloom, Boom & Doom" report, believes that the Sensex could fall further to 20000, a 20 percent decline. He says that India needs a tighter monetary policy for growth momentum, adding that it is better-off than China.

China, Faber says, has a colossal credit bubble waiting to burst. The Chinese economy is growing at a much slower pace, closer to 2-4 percent, than what its government is indicating, Faber adds. Last week, China had said that its economy is growing at 6.9 percent currently.

Speaking on the US, he says the US market had started declining almost a year back. He expects the market to see a 20-40 percent fall from its high in May 2015.

However, he says that the indices do not reflect corporate profits. Individual names like Facebook, Netflix, Google and Amazon have reported good growth, which is not reflected, he adds.

Below is the verbatim transcript of Marc Faber's interview with Surabhi Upadhyay on CNBC-TV18.

Q: It has been sparked by Mario Draghi last evening once again, the ECB hinting that there could be a review of their monetary policy stance, but you have predicted and this is what I have captured in some of the commentary that you have made in the recent past, a 40 percent crash in stock prices, do you stick to that view?

A: What I said is that the market in the US would decline between 20 and 40 percent from the high rates last May, which was on the S&P 2,134 and I also told you six months ago when the Indian market was still close to 30,000 that I expected the markets to decline to around 24,000.

Q: How do you read the picture right now? You are bearish on China and I don’t think that 6.9 percent gross domestic product (GDP) number is something that you were in agreement with, now we have central banks hinting at some kind of action, there are experts talking about action in Japan and of course in the ECB, how do you read this fall that we have seen so far in January and just the overall set up?

A: Basically the market in the US began to decline a long time ago if you look at the average stocks in the US. It is down over the last 12 months by 26 percent from their highs, the average stock but the indices held up very well until the end of December because the indices do not reflect what is happening in the market.

For example, you have an index, you have 500 stocks, if three stocks are very strong, they can push up the index while 497 stocks go down. So we have to look at the market beneath the surface and beneath the surface there was already a bear market in the US for a long time, for a year or more but there are some stocks and maybe another 20 shares such as Facebook, Amazon, Google that were driving and keeping the index up.

The interventions by the Central Banks have a numerous unintended consequences - they lead to rise in stock prices. But for many people, this is not favourable because particularly in real estate, the affordability becomes an issue, they don’t have the money to buy expensive homes and so the home ownership rate in the US has been way down.

Q: Are we done with this current round at least, do you think we are close to the bottom, how would you read this mega rebound rally that has been underweight today in many markets, the US, Europe and of course in Asia, how do you read today's rally and how far away from the bottom do you think we are?

A: Bear markets are characterised by very sharp rallies that can fed relatively quickly. In the US last Friday we also have the huge rally from the lows, the market still closed down and it was unusual. This is very seldom that this happened and it is indicative that precisely most stocks have been weak for a long time and it is also indicative that we are in very oversold position but the oversold position can lead to a rally but most likely and I am saying most likely not to new highs.

Q: So this is just a bear market rally you were saying?

A: Yes. I think the markets will still go lower. What we can have is the difficulties -- if you print money, basically something will go up and in the case of the last few years what has gone up meaningfully are stocks but that after 2011, stocks did no longer go up and may I remind you that the Indian stock market is still down 35 percent from its high in May 2008 and we are down last year 27 percent from the high in March 2015. So basically if you print money, you can lower the value of your currency and then you can have asset inflation.

Q: Since you have brought up India, a lot of the optimist here and even around the world are categorising this market as perhaps the best place at least in the emerging market basket. What is your specific call on India, how much lower do you think this market can go and would it make sense for contrarians to start deploying any money in India right now?

A: Personally, I think India may still go down from 20,000. That is possible that is another 20 percent. In a volatile world, 20 percent is not a big deal and I think that eventually the market will go higher in India but it will obviously depend on monetary policies.

I prefer India to have a relatively tight monetary policies as they practice under Raghuram Rajan who I think is the best central banker in the world because if you keep money relatively tight, the currency is relative strong and this has happened in India. This is the best for India to have a relative strong currency.

The stock market is not important for the average Indian because the maximum few percentage of the population own shares.

Q: Let me quickly now take your views on how are you reading china and how are you reading oil and I was listening to some commentary from Davos that was coming yesterday. The COO of Goldman Sachs says the world is perhaps reading the oil market wrong, people are saying that the oil fall or the collapse in prices is an indication of weakness in the economy. It is not a problem in terms of demand, it is oversupply, which has driven down oil so much. So therefore why are we getting so bearish? How would you react to some of these views and how are you looking at China in the context of this commodity collapse?

A: I am not predicting that the Indian market will go to 20,000 but I think it is a possibility that it will go down to 20,000. As I told you, I think 20 percent decline in a volatile world is nothing. So from a longer-term perspective, it is probably quite a good time to start buying some Indian equity.

Secondly, my advice to all your Indian viewers is this -- don’t listen to the people in Davos. This is the establishment. They all lie, they are all misinformed, they all pursue an agenda. So don’t even listen to them. These are the same people that two years ago told the world that China was growing rapidly and expanding and so on. So their credibility is undermined.

Q: Coming back to China, I think you were one of the people who has the most bearish view on that economy, you are saying 4 percent is the actual rate of GDP growth. If China goes into a tailspin, that is terrible news for everybody including us here in India. So very quickly do you think the oil market is close to its bottom and what do you think we can expect from China over the next couple of weeks and months?

A: Basically the Chinese economy is much weaker than the government is telling you. Economy at the present time is growing at maximum 2-4 percent.

In general, we have a colossal credit bubble in China and this credit bubble has to be deflated one way or the other. India in this respect is in a better position because we don’t have that kind of a credit bubble. We also have some excessive credit in some sectors of the economy but not to the extent China has.

In my view, the Chinese economy -- you just have to look at imports and the exports from Taiwan, from South Korea, these are relatively reliable statistics. Then you look at the Baltic dry index and freight cost in China and electricity consumption and everything points out that the economy is not growing at 6.9 percent. This is complete nonsense but of course it is published by the government. So I am telling you, don’t listen to the Davos people.

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First Published on Jan 22, 2016 01:42 pm
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