Global Markets Face `Severe Correction,' Faber Says
By Ian C. Sayson and Pimm Fox
Jan. 8 (Bloomberg) -- Marc Faber, who predicted the U.S. stock market crash in 1987, said global assets are poised for a ``severe correction'' and it's time to sell.
``In the next few months, we could get a severe correction in all asset markets,'' Faber said in an interview with Bloomberg Television in New York. ``In a selling panic you should buy, but in the buying mania that we have now the wisest course of action is to liquidate.''
Faber, founder and managing director of Hong Kong-based Marc Faber Ltd., advised investors to buy gold in 2001, which has since more than doubled. His company manages about $300 million in assets.
The bullish outlook of traders in everything from bonds, equities and commodities to real estate and art suggests valuations are peaking, Faber said. Last year, the Morgan Stanley Capital International World Index of developed stock markets jumped 18 percent, while a survey of Wall Street's biggest bond- trading firms predicted U.S. Treasuries will post the best gains in five years during 2007.
``I am not a great buyer of assets now,'' Faber said. ``We may be in a situation where consumer-price inflation comes back and will have a negative impact on the valuation of assets.''
Faber, publisher of the Gloom, Boom & Doom Report, does have some favorites. Singapore and Vietnam are his top picks in Asia because stocks in Singapore aren't ``terribly expensive compared with interest rates'' in the city-state, while Vietnam's equities have ``incredible potential in the long run.''
Vietnam's Ho Chi Minh Stock Index more than doubled last year and was Asia's best-performing benchmark. Singapore's Straits Times Index climbed 27 percent, beating a 15 percent increase in the Morgan Stanley Capital International Asia-Pacific Index.
So far in 2007, Vietnam's index has surged 10 percent, again leading gains in the region, and Singapore's is up 0.6 percent. The MSCI has dropped 1 percent.
Faber recommends investors steer clear of shares in the world's biggest developing economies after the emerging markets in 2006 outperformed their developed counterparts for a fifth straight year.
``Emerging markets could get kicked in the next three months so I'd be careful of buying Russian shares,'' Faber said. ``I'd also be careful of buying China and India shares now.''
Russia's dollar-denominated RTS Index surged 75 percent last year, while the Hang Seng China Enterprise Index, which tracks Hong Kong-listed shares of Chinese companies, jumped 94 percent. India's Sensex Index, which more than quadrupled in the past five years, is valued at 25 times estimated earnings.
Faber also advises investors stay away from shares in Thailand, where he and his family are based. The nation's SET Index has been the world's worst-performing benchmark in the past month, sliding 15 percent as currency controls introduced by the central bank and bombs in Bangkok spooked investors.
``Valuations in Thailand are very inexpensive but I wouldn't buy tomorrow,'' said Faber. `` We have some political problems in Thailand right now. I'd wait for a couple of months.''
The SET is valued at 10 times estimated earnings, the lowest among 14 Asia-Pacific markets tracked by Bloomberg. MSCI's regional index is valued at 18 times.
On a more positive note, Japanese stocks may prove good bets this year, Faber said. The Nikkei 225 Stock Average climbed 6.9 percent in 2006 and the broader Topix index added 1.9 percent, the smallest gains among benchmarks for the world's 10 biggest markets.
The U.S. outpaced Japan last year, with the Standard & Poor's 500 Index climbing 14 percent and the Dow Jones Industrial Average surging 16 percent.
Strategists at 14 of the biggest Wall Street firms all estimate that U.S. stocks will advance this year. The last time they were in agreement was for 2001, when the S&P 500 dropped 13 percent.
``It's going to have to be something unexpected and somewhat dramatic'' to spur the type of pullback that Faber predicts, according to Wayne Wicker, chief investment officer at Vantagepoint Funds in Washington, which has about $28 billion in assets. ``Given the current environment we see today, I don't see anything imminent, other than a huge amount of money chasing deals, as a real negative.''
Last year saw a record $3.68 trillion in takeovers, led by AT&T Inc.'s $86 billion purchase of BellSouth Corp., according to data from Bloomberg. Mergers and acquisitions will rise by at least 10 percent this year, analysts at Deutsche Bank AG, JPMorgan Chase & Co. and Bank of America Corp. forecast.
Faber said gold should rally further on expectations that supply of the precious metal will decline and demand for it will increase to hedge against inflation. Gold climbed 23 percent last year, its sixth year of gains.
``The price of gold will continue to go up and probably very substantially,'' Faber said. ``In the long run, it's very clear that central banks are basically increasing the supply of money and the supply of gold is obviously very limited.''
Oil prices are also tipped to rise as political instability in the Middle East and other petroleum-producing areas threatens supply and global demand increases. Crude oil in New York added less than 0.1 percent to $61.05 a barrel in 2006, after tripling in the previous four years.
``Everyday the world is burning more oil than new reserves are added,'' Faber said. ``You wont see $12 dollars again'' for every barrel of oil. ``The trend is likely more to be upside because demand in Asia is going to double over time.''