Emerging markets underperform : Marc Faber

“I don’t think the S&P or any market would go up significantly after rising 50-100% in the last 8 months and I don’t see the markets rising the same way over the next 8 months.” “Now, can they correct or go up 20-30%? The answer is yes.” The ‘risk-reward’ to invest in equities now is not as favourable as it was in March 2009, Faber said.

Smart investors who made money in 2009 may sell emerging market stocks and start buying the S&P in the US as it may outperform because of a rally in the US dollar, says investment guru Marc Faber, the publisher of the Gloom Boom & Doom report, who predicted a stocks rally in early 2009 when it was gloom all around.

“There are people who made a lot of money in 2009 and this category is concerned that the markets have overshot,” Faber said in an interview with ET. “So, some of them have taken profits and some of them are inclined to do so. In theory, it is possible that there is a dollar rally and an outperformance in the S&P vis-à-vis emerging markets.”

Global stocks, commodities and precious metals have rallied sharply this year following an unprecedented easing of monetary policy by central banks across the globe to avert a 1930s-like depression. The rally has pushed mainly emerging market stocks to high valuations which may not be backed by a corresponding earnings growth. Hence, western investors who were borrowing cheap and investing in emerging markets may get back to buying assets in developed markets which are recovering and partly in anticipation of higher interest rates too.

source:ET