Investors of Indian market are not a happy lot as it crashed 24% in 2011. The new year too does not begin on a very happy note and experts still see India in a danger zone.
In an interview to CNBC-TV18, Marc Faber, editor and publisher, The Gloom, Boom & Doom Report warned that the Sensex may bottom out between 12000-15000 levels. Expecting further weakness in the emerging markets in the initial part of 2012, he is not so positive on India.
Faber is looking at an entry into India in the next six to nine months. There is some bit of a good news for foreign investors interested in Indian market. The government will now allow individual foreign investors direct access to its stock market from January 15.
Foreign fund inflows, a major driver of Indian stocks, dried up with net outflows of about USD 380 million as of Wednesday, a far cry from record inflows of more than USD 29 billion in 2010 that had powered a 17% rise in the benchmark index, following an 81% surge in 2009.
Below is an edited transcript. Watch the accompanying video for more.
Q: What are the expectations you would have of 2012 from equity markets given how bad last year was for equities worldwide?
A: We have to clarify the statement about how bad it was for equities worldwide because the US market was flat and it significantly outperformed most other markets in the world in particular emerging economies stock markets. This resembles the underperformance we had in 2008 that made the major buying opportunity. What we will have in 2012 is initially maybe some maybe further weakness in emerging economies against the US market and then a major low in emerging stock markets, including, India. I was looking for India to bottom out the Sensex between 12,000 and 15,000 and we are getting there slowly.
Q: It?s not just India but all the BRIC markets fell off between 20% and 30% in dollar terms last year. Are you expecting significant outperformance from those markets relative to the US in 2012?
A: You right way but what we had in 2008 was the outperformance of the US and emerging economies? stock markets and commodity markets got hit very hard but it lead to a major low in emerging stock markets that bottomed out between October 2008 and March 2009 and after that emerging stock markets outperformed the US until say the end of 2010.
So I think we may get a similar picture. That?s why when I read all the strategies that say - I think we should invest in the US, I say maybe that?s correct for the next three months or so but I would rather be looking at an entry point in markets like India over the next six to nine months.
Q: Equity market performance was driven by what happened in the currency market. For this year, what will you say is the likely outcome on parameters such as the dollar index, what happens with the euro dollar and how currencies are impacted by that?
A: To make forecasts about free markets is very difficult. The free market and that perfectly functioning market is a market where no market participant has dominated the market but today you have a manipulated market.
It is the governments which intervene continuously to influence the price of money in other words interest rates and fiscal policies so to make any predictions of political issues we can know exactly how far the ECB in Europe will monetise and at what stage QE3 will come about in the US but if the S&P drops another 10% you can be sure that there will be more QE in the US. So the markets would be supported by additional liquidity injections.
Q: Where does all this leaves the commodity markets for 2012? If you had to take calls on gold and crude, how do you think they will do this year?
A: We have to distinguish between precious metals and industrial commodities. My concern is that the Chinese economy is going to be weaker than is expected and that the demand for industrial commodities will probably disappoint. So I am not particularly keen on buying industrial commodities at this stage. In the case of gold, as you know we had a 10-year bull market and we peaked out in dollar terms on September 6. 2011 at USD 1,921 per ounce at which stage the gold price had somewhat overshot on the upside and we are in a correction phase.
I happen to think that the correction phase is not completely over but recently sentiment on both silver and gold have turned very negative. We may have a trading rebound year -trading rally and then some further weakness into possibly February-March and then probably a major low. Then the question will be whether the precious metals rally again and will they exceed the peak of 2011 or not.
Q: By how much would you postpone expectations of a big upmove for equity markets? When do you think there will be a clean resumption of trend or possibly the potential for markets to get into a bull phase again?
A: This is a good question because essentially what you could get in the world is worsening geopolitical and economic conditions. Let?s say Israel attacks Iran. It?s a negative event basically but it could be counted by monetisation everywhere in the world in other words liquidity injections. So stocks could go up while conditions worsen.
This usually happens when you massively inflate the quantity of money but from the mentally sound market in my opinion will only come about when the system has been cleaned and moved down after the financial crises of 2008 is essentially just painting the building with fresh paint but we haven?t addressed the fundamental problems of the Western world which is an over indebted society.
In an interview to CNBC-TV18, Marc Faber, editor and publisher, The Gloom, Boom & Doom Report warned that the Sensex may bottom out between 12000-15000 levels. Expecting further weakness in the emerging markets in the initial part of 2012, he is not so positive on India.
Faber is looking at an entry into India in the next six to nine months. There is some bit of a good news for foreign investors interested in Indian market. The government will now allow individual foreign investors direct access to its stock market from January 15.
Foreign fund inflows, a major driver of Indian stocks, dried up with net outflows of about USD 380 million as of Wednesday, a far cry from record inflows of more than USD 29 billion in 2010 that had powered a 17% rise in the benchmark index, following an 81% surge in 2009.
Below is an edited transcript. Watch the accompanying video for more.
Q: What are the expectations you would have of 2012 from equity markets given how bad last year was for equities worldwide?
A: We have to clarify the statement about how bad it was for equities worldwide because the US market was flat and it significantly outperformed most other markets in the world in particular emerging economies stock markets. This resembles the underperformance we had in 2008 that made the major buying opportunity. What we will have in 2012 is initially maybe some maybe further weakness in emerging economies against the US market and then a major low in emerging stock markets, including, India. I was looking for India to bottom out the Sensex between 12,000 and 15,000 and we are getting there slowly.
Q: It?s not just India but all the BRIC markets fell off between 20% and 30% in dollar terms last year. Are you expecting significant outperformance from those markets relative to the US in 2012?
A: You right way but what we had in 2008 was the outperformance of the US and emerging economies? stock markets and commodity markets got hit very hard but it lead to a major low in emerging stock markets that bottomed out between October 2008 and March 2009 and after that emerging stock markets outperformed the US until say the end of 2010.
So I think we may get a similar picture. That?s why when I read all the strategies that say - I think we should invest in the US, I say maybe that?s correct for the next three months or so but I would rather be looking at an entry point in markets like India over the next six to nine months.
Q: Equity market performance was driven by what happened in the currency market. For this year, what will you say is the likely outcome on parameters such as the dollar index, what happens with the euro dollar and how currencies are impacted by that?
A: To make forecasts about free markets is very difficult. The free market and that perfectly functioning market is a market where no market participant has dominated the market but today you have a manipulated market.
It is the governments which intervene continuously to influence the price of money in other words interest rates and fiscal policies so to make any predictions of political issues we can know exactly how far the ECB in Europe will monetise and at what stage QE3 will come about in the US but if the S&P drops another 10% you can be sure that there will be more QE in the US. So the markets would be supported by additional liquidity injections.
Q: Where does all this leaves the commodity markets for 2012? If you had to take calls on gold and crude, how do you think they will do this year?
A: We have to distinguish between precious metals and industrial commodities. My concern is that the Chinese economy is going to be weaker than is expected and that the demand for industrial commodities will probably disappoint. So I am not particularly keen on buying industrial commodities at this stage. In the case of gold, as you know we had a 10-year bull market and we peaked out in dollar terms on September 6. 2011 at USD 1,921 per ounce at which stage the gold price had somewhat overshot on the upside and we are in a correction phase.
I happen to think that the correction phase is not completely over but recently sentiment on both silver and gold have turned very negative. We may have a trading rebound year -trading rally and then some further weakness into possibly February-March and then probably a major low. Then the question will be whether the precious metals rally again and will they exceed the peak of 2011 or not.
Q: By how much would you postpone expectations of a big upmove for equity markets? When do you think there will be a clean resumption of trend or possibly the potential for markets to get into a bull phase again?
A: This is a good question because essentially what you could get in the world is worsening geopolitical and economic conditions. Let?s say Israel attacks Iran. It?s a negative event basically but it could be counted by monetisation everywhere in the world in other words liquidity injections. So stocks could go up while conditions worsen.
This usually happens when you massively inflate the quantity of money but from the mentally sound market in my opinion will only come about when the system has been cleaned and moved down after the financial crises of 2008 is essentially just painting the building with fresh paint but we haven?t addressed the fundamental problems of the Western world which is an over indebted society.
