Marc Faber says emerging markets have become relatively inexpensive versus developed markets. Investors are now realizing how inexpensive these EMs are and hence more money is flowing in, he adds.
Since 2011, the US stock market was the only game in town, with gross underperformance from emergings markets – especially Brazil and Russia, says Marc Faber, editor and publisher of The Gloom, Boom & Doom report.
He says emerging markets have become relatively inexpensive versus developed markets. Investors are now realizing how inexpensive these EMs are and hence more money is flowing in, he adds. He believes Asian markets will perform better than the US over the next 10 years.
For the Reserve Bank, he says the central bank’s number one priority right now is currency stability.
Faber sees very little value in European bond yields. He says there is little value in financial assets with many bonds trading with negative yield.
According to him, India becoming the biggest economy in the next five years is an overly optimistic view. Though, even if India delivers 4-5 percent growth, it will be better than most countries, he adds.
Also, he does not see the US Fed increasing rates this year unless there is a sharp pick-up in the economy.
Below is the verbatim transcript of Marc Faber's interview with Latha Venkatesh and Sonia Shenoy on CNBC-TV18.
Latha: Asian emerging markets have been seeing some decent rallies in the past 8-12 weeks. What is your take on this bunch of emerging markets?
A: Basically what has happened over the last couple of years and certainly since 2011, we thought the US stock market was the only game in town and that emerging markets grossly underperformed with some performing very poorly, such as Russia and Brazil for a specific reasons but, also China performed very poorly. And recently in my view what investors are beginning to recognise is that because the US market was so strong, it almost toppled since 2011 and it dropped more than three times since 2009. Emerging markets have become relatively inexpensive and so some money has been flowing into Asia and in the last 12 months the money has flowed mostly into the Philippines, Indonesia, Thailand and Vietnam but now over the last 6-7 months, money has shifted from these well-performing markets mostly into China. And as you know, India has also grossly underperformed in global markets until 2013 and then by November 2013 we started to rally ahead of the election and since then India has performed very well.
Sonia: So, according to you Marc which Asian equities have value now? What is your pecking order looking like?
A: If we talk about value, there is very little value in financial assets. If you look at bond yields in Europe and now the 10 year Swiss Bank government bond has a negative yield. And the French government bonds 10 year yields half a percent. In the US government bonds yield 1.9 percent. So, when we talk about value there is not that much value, what there is, is relative value. So, let us say we are obtaining today USD 1 million and our choice is to invest in the US stock market which is relatively high or in India or in Asia in general for a period of 10 years, the Asian markets over a 10 years period will perform better than the US stock markets. You see, India has one advantage and it is that in my view, not everybody will agree with that but in my view, India has probably the world’s best central banker, Rajan and he has kept interest rates at the high level. Now, some people say that is not necessary, you should cut rates, but I think the message from the Reserve Bank of India is really currency stability is number one goal, objective. And once they achieve the currency stability inflation is going to come back and confidence will come back and money will flow into India and then they can start to lower interest rates.
Latha: Not a lot of people buy that argument though in India. In any case, people do not buy India, investors do not buy India for stability. Investors buy India for growth. Do you see any improvement in growth at all? Especially in corporate earnings, the third quarter numbers were pretty dismal.
A: Concerning growth, first of all in India and elsewhere among people who invest in India, the view was that India could be the fastest growing economy in the world in the next 5-10 years. I do not think so. That is overly optimistic and overly optimistic expectations. If India, let us take worst and best case. Worst case India grows at 3-4 percent per annum. Best case it grows at 8 percent. Both are not very likely. So let us assume it grows at 4-5 percent per annum. That is still a fantastic growth rate compared to other countries, compared to the whole of Western Europe, compared to the United States. People have misconception about growth; they think that an economy can grow at 8-9 percent forever, that is not the case, it is not possible. So, I am happy if India grows say at, 4-5 percent per annum.
Sonia: So, you are not expecting a rate hike from the US Fed this year?
A: What I said is in my view the Fed will not increase rates this year unless there is really a very sharp pick up in the economy or there is a colossal pot-hole developing in stocks. But otherwise I doubt it because the dollar has been strong. Okay, it may weaken somewhat, but I do not think it will collapse against the euro and against the yen and the British pound and so forth. So, the dollar is relatively strong. The economy in the US, the latest say, ten indicators that came out were all on the weak side. And under these conditions I doubt the Fed will increase rates. But that is an academic debate. What is important is I think the Feds and other Western Central Bankers will keep interest rates at a very low level for a very long time and will try to keep interest rates in real terms negative. In other words below the rates of cost of living increases.
Latha: Yes, I note your exasperation. Therefore let me come to another asset class: commodities. Do you think they have bottomed or is it that there would be a long trough for this asset class?
A: We have to distinguish because the price of oil has very little to do with the price of orange juice or coffee. So each commodity has its own price dynamics driven by global production and global demand. Now industrial commodities have performed miserably along with emerging markets over the last couple of years because the demand was slowing down especially from China. So, you have prices of iron ore and steel and copper and oil that have collapsed. I happen to think that at this level a lot of commodities are reasonably priced, does not mean they will go up right away. But they come now into a buying rate and I have been buying some oil stocks recently.The Great Diwali Discount!
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