Benedicte Gravrand, Opalesque Geneva:
Last week (third week in August) was a turbulent week in some Asian countries as the sell-off intensified. And this turbulence is set to continue, says Marc Faber.
Indeed, investors have been exiting the Indian and Indonesian currencies following months of decline and a sharp drop last Thursday. The currencies of Malaysia, the Philippines and Thailand also declined, although by less than 1%, says the New York Times. Stock markets across most of the region fell on Thursday, but share prices rebounded slightly in India. However, China and Japan's were unaffected by this general waning.
The Indian rupee fell to a fresh record low against the U.S. dollar (breaching the key level of 66.00 to the dollar) on August 27th, causing a selloff in local stocks, reported the Wall Street Journal. And emerging-market stocks posted the biggest drop in eight weeks on concern a conflict between the U.S. and Syria will intensify (the MSCI Emerging Markets slid by 1.8% on August 27th, said Bloomberg).
"The countries most affected when investors flee emerging markets are those that rely on the fickle inflow of investment to balance out longstanding deficits in trades and services," said Stratfor, a geo-political intelligence firm, on Friday. These include Turkey (the Turkish lira weakened to 2.0051 against the dollar on Aug. 27), India and Indonesia among others.
Investors too optimistic
Marc Faber, the Swiss-born and Thailand-based investment guru noted, according to Swiss paper Le Temps, that investors had been too optimistic about Thailand, the Philippines and Indonesia, and that they now realise that growth is slowing down. Which is why stocks were being sold off last week and currencies were under pressure.
Faber, who also edits the monthly Gloom, Boom & Doom Report, stated that a fundamental change occurred in those countries in the last few years; they started showing current account deficits. He thinks that those economies were stimulated artificially with credit expansion. "There were excesses, although not like in 1997," he added (in South-East Asia, the current slide in currencies is triggering deep concerns of a repeat of the 1997 crisis). Moreover, these economies also depend on China for their raw material exports. China is itself slowing down, and it is doing so more than the official figures tell you, he said.
He is also sceptical about the outlooks coming from large foreign banks implemented in those countries, for they not entirely disinterested. Besides, he added, export figures from various countries don't match. As for India, which saw its currency fall, and its central bank announcing a plan to buy 80 billion rupees' worth of government bonds, Faber believes this kind of support may not work, and that India should hike up its interest rates instead to around 12-13%.
In the current context, he does not recommend investing in the Asia stock markets.
The previous week, Faber claimed that stocks were in "bubble territory", making it a good time to move into gold.
"I have a preference for physical gold, held in a safe deposit box outside the United States, and preferably in Asia, for a variety of reasons," he was quoted as saying by CNBC.
This piece first appeared in Opalesque August 28th.
This article was published in Opalesque's Asia Pacific Intelligence our monthly research update on alternative investments in the Asia-Pacific region.