HONG KONG: In response to questions from DNA Money in Hong Kong on Thursday, Marc Faber gave a bearish outlook on the Indian market.
Excerpts:
On the Indian equity market -
India is not problem-free. The Sensex went from 3,000 in 2003 to 21,000 and now we are at 14,000. My target would be for the market to eventually drift below 10,000 and then be attractive again as an entry point. I wouldn’t go and buy now. Maybe the market will move sideways for a while, but I don’t think a bull market is due anytime now. I define a bull market as a market that leads to a new all-time high. New all-time highs in markets are most unlikely for the time being. I’m not interested in playing the market at the present time.
On China -
I’m negative about growth in China: I think it will be a disappointment. In America, we have a credit bubble, and in China we have a capacity bubble and misallocation of capital.
But economies like China grow very rapidly and can have significant adjustments. In 1995, the vacancy rate in commercial property in Shanghai was close to 25%, but three years later it was down because the country was growing. If you have empty buildings in China, five years later they will fill up. I’m not negative about China for the long term, but from a cyclical point of view, the Chinese economy could turn out to be weaker than what analysts are telling me.
On the decline of America -
Over the last few years, a huge shift has already begun to take place: the relative importance of the western world, notably the US, is diminishing, and the relative importance of emerging economies, particularly China and India, is increasing. At the same time, we also have a huge shift in the balance of power from the industrial countries of the West to resource-producers. All this is reflected in the fall in the US’ share of global GDP from 32% in 2000 to 28% now. This trend will continue for a long time. Simultaneously, the health of emerging economies is better than it has ever been in history.
On the US dollar outlook-
In the short term, the dollar may be stronger than the world perceives. If the US current account deficit trends lower over the next 6 to 12 months, the dollar could rally. But I wouldn’t bet too heavily on that rally. The US has many problems, but I don’t believe the real economy in America is in such a bad shape. It has actually gained some competitiveness in exports. And if US consumption goes down, it’s not a disaster for America, because it produces next to nothing. It will be the producing countries that will be affected rather more.
Excerpts:
On the Indian equity market -
India is not problem-free. The Sensex went from 3,000 in 2003 to 21,000 and now we are at 14,000. My target would be for the market to eventually drift below 10,000 and then be attractive again as an entry point. I wouldn’t go and buy now. Maybe the market will move sideways for a while, but I don’t think a bull market is due anytime now. I define a bull market as a market that leads to a new all-time high. New all-time highs in markets are most unlikely for the time being. I’m not interested in playing the market at the present time.
On China -
I’m negative about growth in China: I think it will be a disappointment. In America, we have a credit bubble, and in China we have a capacity bubble and misallocation of capital.
But economies like China grow very rapidly and can have significant adjustments. In 1995, the vacancy rate in commercial property in Shanghai was close to 25%, but three years later it was down because the country was growing. If you have empty buildings in China, five years later they will fill up. I’m not negative about China for the long term, but from a cyclical point of view, the Chinese economy could turn out to be weaker than what analysts are telling me.
On the decline of America -
Over the last few years, a huge shift has already begun to take place: the relative importance of the western world, notably the US, is diminishing, and the relative importance of emerging economies, particularly China and India, is increasing. At the same time, we also have a huge shift in the balance of power from the industrial countries of the West to resource-producers. All this is reflected in the fall in the US’ share of global GDP from 32% in 2000 to 28% now. This trend will continue for a long time. Simultaneously, the health of emerging economies is better than it has ever been in history.
On the US dollar outlook-
In the short term, the dollar may be stronger than the world perceives. If the US current account deficit trends lower over the next 6 to 12 months, the dollar could rally. But I wouldn’t bet too heavily on that rally. The US has many problems, but I don’t believe the real economy in America is in such a bad shape. It has actually gained some competitiveness in exports. And if US consumption goes down, it’s not a disaster for America, because it produces next to nothing. It will be the producing countries that will be affected rather more.