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World markets overbought: Marc Faber

This article was posted on Aug 20, 2009 and is filed under Market Outlook

BANGKOK: Investment guru Marc Faber says markets across the world are overbought and Indian markets may have peaked for the year.

He expects the dollar to rebound over the next three months.

Excerpts from the conversation:

Your call on China and the weakness that has crept in over the last fortnight… What’s your take on the weak economic and financial market news flow coming out of that economy?

Faber: The Chinese have implemented the world’s largest stimulus package. These packages have not helped the Chinese economy very much. It has created another kind of stock market bubble. This is being corrected now.

Do you expect more of a correction in China?

Faber: The markets are no longer free, there is continuous intervention. The Chinese markets came down 10-20% on the hope that government would implement supporting measures… Predicting markets worldwide is extremely difficult…The S&P in the US reached 1000 two days ago from 650 in March. If the S&P were to drop 10-20%, then Federal Reserve would monetise massively.

Do you think India is vulnerable to a correction if global markets continue to fall?

Faber: Yeah… In China, we saw a fall of about 17% from the peak. The US markets are a little bit oversold and might rally again. I would not be surprised if the early August highs were actually the high for the year.

Is that a call just on China or is it a call on all markets — that the high we saw in August will be the high for the entire year?

Faber: Well, I think correction has begun in most markets. Between March and August, there has been a rise in commodities and equities. Bonds did not perform well and the dollar was weak. I think, for the next 1-3 months, bonds could rally somewhat and the dollar could recover somewhat.

In this backdrop, what’s the outlook on the Indian markets and Indian equity? How do you see the Sensex for the rest of the year?

Faber: Well, I look for correction here also. We will have to look at the nature of correction, how real it is and also at the kind of volumes to determine whether we are in a bull market rally that started in March or whether we are in bear market rally.

What’s your reading on the US dollar and what’s the outlook on the currency? What could be the impact of this currency on commodities and how do you see the correlation of crude and commodities?

Faber: Well, I think the dollar was very weak between 2006 and 2007. In 2008, it was strong. Starting March this year, the dollar began to weaken. I believe that it may probably rebound somewhat more from here. In other words, for the next 3 months, I won’t be sure about the US dollar. If the dollar becomes strong, it may be a consequence of global liquidity tightening. This will not be good for global economic growth, and certainly not good for demand for industrial commodities. So, I would be rather cautious about investing in industrial commodities.

Do you think we are in an overbought zone as far as industrial commodities are concerned?

Faber: I look at industrial commodity from the demand and supply point of view. I think, from a longer term perspective, commodities are still an attractive investment. But from a shorter point of view, given that I do not expect the global economy to improve much, I will not necessarily buy industrial commodities.

Can you take a bullish or bearish call on US equity markets at this point?

Faber: Well, basically by looking at all the economic data coming out of the US, I think the economy has stabilised, but at much lower levels than it was two years ago … because of the stimulus packages, the economy is stabilising, but that doesn’t mean that it will grow a lot. I think there will still be some disappointments that will arise.

Your thoughts on the poor Indian monsoons and the GDP numbers…

Faber: If it is severe, then, of course, there will be some impact. But I would not over-emphasise this impact. I think what the economy will do is not at all that important. I’m paying more attention to the central bank actions.

Is there still genuine fresh liquidity waiting to enter the Indian markets at these levels or at a slight dip?

Faber: Well, I think, if you look back at 2008 and 2007, India performed exceedingly well. In 2008, we got a huge setback and we probably are bottoming out the lows. I don’t think we will make a new low … after the crash in 2008, the markets required a bottom formation… I think we will have a lot of volatility because some fund managers will move in and out of equities.

source: UTVI

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