FII funds to stay in India, more to come on declines: Faber
Investment Guru Marc Faber believes that the Indian market is overvalued but FII interest will continue. He adds that FII money will stay in India and more will come in at declines.
Investment Guru Marc Faber believes that India has finally become an asset class and that international fund mangers will not desert it entirely, although at some point they may reduce the exposure.
He says that Indian market is overvalued, but FII interest will continue. He adds that FII money will stay in India and more will come in at declines.
Gold is trading at the highest level in 18 years on Japanese buying. In Mumbai it has touched an all-time high of Rs 7,400/10 gm.
Faber says that gold prices are likely to continue to outperform the Dow Jones.
Excerpts from CNBC-TV18's exclusive interview with Marc Faber:
Q: How are you reading the global equity environment right now?
A: Basically, a lot of this recent rally has to do with the perception that whatever happens, the US will print money and so the asset inflation will continue. If we look back at the last couple of years, then we note some significant divergences in asset markets. In particular, the hard asset will tend to perform better than paper asset, especially in the US.
In the year 2000, it took 44 ounces of gold to buy one Dow Jones Industrial and at present, despite the rally in the stock market in the US, it only takes 22 ounces of gold to buy one Dow Jones Industrial. In other words, over the last couple of years the price of gold has significantly outperformed the Dow Jones. I think this outperformance will continue.
Q: Your expectations on where the tightening cycle has reached in terms of interest rates in the US and the global emerging equity markets from here on?
A: I have maintained the view that in this tightening cycle where global liquidity is somewhat shrinking, emerging markets will not perform particularly well. But I think they can still perform better than the US. In other words, we have outperformance of emerging economies vis-א-vis the US.
What is new in this world is that if one looks at the last 200 years of capitalistic history, then it was always the rich countries that financed the poor countries. In other words, the developed world was transferring capital to emerging economies; like in the 19th century Europe financed the economic growth in US.
Now what is different this time and is a kind of an irony is that the poor countries that have very low per capita income such as China, are basically financing consumption in the US. So the financial position of the emerging economies is much better than ever before.
Q: Regarding tightening global liquidity situation–can India within that emerging market space, still continue to attract the attention it has, because valuations have become a concern for both domestic and international analysts?
A: That is correct. We had a major sell signal in the sense that the Japanese were very heavy buyers of Indian equities, and Japanese have never bought anything that was not expensive and usually they bought right at the top of the market.
I have another argument in favour of Indian equities in the long run. First, never before in the last 100-200 years has India really been an asset class and now for the first time; India has become an asset class among fund managers globally and they will not desert it entirely, although they may reduce the exposure at some point.
But at the same time, the money that has been invested in India by international investors is very small in the global context and in the context that India is a country with a billion people population. I believe there is still a lot of money waiting on the sidelines. When I spoke to a fund manger a couple of days ago, he said that he agrees that the market is overbought in India and it is overheated but at the same time, one needs to be in India for the next 10 years. If a fund manger can swallow a significant correction that will occur at some point, then I think money will stay in India and as the market would sell off, I think more money would come in.
Q: Are you saying that if we did indeed correct a little you are not expecting to see a sharp slide because of the kind of money interest?
A: That depends, there are two possible scenarios; all markets in the world, right now, the European markets, the US and also emerging markets with some exceptions; all of these markets are significantly over bought on a near term basis. So they could correct by 5-10%.
At the same time, it is also possible that the result of money printing by Bernanke and the perception of investors that he will print money and that the tightening cycle in the US will shortly end, will result into no correction and maybe the Indian market (Sensex) will rise to 9000 or 10000, maybe even 12000, and then experience a significant set back along with all other asset class. So all this is also a possibility.
Q: Could the bear market and the dollar be coming to an end or is it just a long pull back in a bear market?
A: My feeling is that the dollar is a 'doomed' currency. The only question is doomed against what. If one looks at the world's currencies; we have the dollar, yen, euro, Chinese currency and then we have gold. It is conceivable that the dollar doesn’t lose a lot of value against the euro and maybe even gain value against the yen. But as I indicated earlier, it continues to lose value against gold and hard assets such as commodities.
Q: What is your target on gold?
A: I think in the near-term gold is overbought. At present it takes 22 ounces of gold to buy one Dow Jones. I think eventually we will be able to buy Dow Jones with 10 ounces or five ounces of gold. In other words, if great optimists are right and the Dow Jones goes to the 36000 level as a result of money printing, then gold will be at USD3,600. In other words this outperformance of gold vis-א-vis the Dow Jones should continue in my opinion.
