Only stupid foreigners buy Chinese shares: Marc Faber

Venky Vembu Sep 23, 2011
Firstpost
Sep. 27, 2011

Investment guru Marc Faber resembles nothing so much as an ageing rock star, but his outlook on the investment world is generally downbeat. The author of the Gloom, Boom and Doom newsletter typically emphasises the 'gloom' and 'doom' scenario more than the 'boom' aspects. But today, Faber confesses to being drawn to the Indian stock market, particularly after the recent sharp market correction. "I think the Indian economy has very favourable prospects," he told Firstpost on the sidelines of the CLSA Asia-Pacific Markets Investors' Forum in Hong Kong. On China, although he reckons that economic growth will be sustained in the long term, he sees a "setback" in the form a credit bubble gone bust beginning to manifest itself. Excerpts from an interaction:

On the prospects for the Indian stock market

I think we have a bear market in India, and it will go lower. But if you're a long-term investor, each time the market drops 40 percent from the peak, you should start buying. You will then have satisfactory returns in the long run. Not huge, but satisfactory returns.

The Indian economy, like the Chinese economy, has very favourable prospects in the long run. We're starting from a very low GDP per capita in India -- some $1,200 against $40,000 in the US. To go from $1,200 to $5000 is not difficult. But from $40,000, it's hard to go much farther unless you print money.

On the Eurozone crisis effect

We had a bank failure in 2008 and the financial system in the western world went bankrupt. It was bailed out by governments, but the banks have learnt nothing. This is partly driven by artificially low interest rates and zero deposit rates. The banks continue to speculate on all kinds of products. What happened to UBS in London (where a rogue trader caused huge losses) can happen to any other bank.

I have lots of clients and readers of my newsletters, and I don't know anyone who owns Greek bonds. So why do the banks -- particularly French banks -- hold Greek bonds and Portuguese bonds and Spanish bonds and Italian bonds? This shows the banks have learnt nothing.

There has to be a separation of banking activity. They can have, on one side, investment banking activity -- they can call themselves UBS Giant Hedge Fund; on the other side, the banking sector has to be ring-fenced for depositors and made 100 percent safe. They shouldn't use that to speculate -- as is happening at present.

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