Tuesday, May 13, 2014
Marc Faber Long China Via Hong Kong
ETF.com: You accurately predicted the rise of China more than 10 years ago in the early 2000s. Fast-forward to 2014—Is China still a good place to invest today?
Faber: It hasn't been a good place to invest for stock investors since 2006, whereby this is a comment based on the market index. If you bought Internet-related stocks in China—like Baidu and so forth—a few years ago, you've done very well. So we have to distinguish in the world that some stocks have done well and some have done badly.
In general, I would say that the stock market in China is now not particularly expensive. It's been going down since 2006, essentially. At the same time, we have very questionable accounting standards. We have had a huge credit bubble in the last five years. How this credit bubble will be deflated and what the impact will be on the economy, we don't know yet for sure. I can hardly think that it will be particularly favorable. I think that Chinese stocks may not go necessarily much lower, but I doubt that they'll go up substantially.
If you want to play a recovery in China, then I think you're better off buying Hong Kong shares, because in Hong Kong, you have reasonably good corporate governance, you have very-well-managed companies, which are owned largely by families. So the families are ready to be conservative in their dealings. They have low leverage. So if you believe that China is bottoming out and going up, I would own some Hong Kong shares, as I do.
Another recovery play—a market that has a similarly poor performance to China over the last few years—is Vietnam, which is very cheap, which has deleverage and improving fundamentals in terms of growing trade surplus, rising exports and so on. So I think Vietnam is better than China itself, if you believe in the Chinese recovery.
ETF.com: When you say Hong Kong, are you talking about H-shares (H.K.-listed Chinese companies), or Hong Kong companies?
Faber: No, the entire Hong Kong market. A Chinese recovery would essentially mean that the property market in China is not overheated, and that property prices will not decline. In which case, Hong Kong property companies would become rather attractive, because they sell, in some cases, at almost a 50 percent discount the net asset value.
ETF.com: So you would favor something like the Hang Seng Index?
ETF.com: The big news recently out of China has been this cross-exchange trading between Hong Kong and Shanghai that’s expected to take place in about six months. Is this a game changer, or somewhat of a yawner?
Faber: I think it's more of a yawner. But it's very clear that China over time will have an open foreign exchange market and capital market. It's a step in the right direction, but it's a very small step. - in ETF.com
Marc Faber is an international investor known for his uncanny predictions of the stock market and futures markets around the world.Dr. Doom also trades currencies and commodity futures like Gold and Oil.
Posted by Nicole Bourbaki