The Hindu Business Line : Indian markets will outperform for next 10 years, says Faber

I expect the next 6-months to be a difficult period in asset markets, including stocks markets. We will have to see whether it is a correction within a rising trend or something more serious.

According to investment guru Mr Marc Faber all asset classes have entered a correction mode. As interest rates, he says, are rising and bonds markets are experiencing weakness in the US, people are beginning to reassess the risk profile they want to take.

Looking ahead, he says, following this correction the money will come back mostly into emerging economies. About Indian economy, he opines that it can grow at 8-10 per cent in the next 5-10 years. As per him, emerging markets, including India, would outperform for next 10 years.

Excerpts from CNBC-TV18's exclusive interview with Mr Marc Faber:

What is your sense of what has been happening in the emerging markets for the last few days because some market watchers feel that the risk appetite is waning just a little bit?

In general, I think all asset classes have entered a correction time. We have a bull market in real estate, bonds, stocks, and commodities since October 2002. As interest rates are rising and bonds markets are experiencing weakness in the US, people are beginning to reassess a little bit of the risk profile they want to take. We have a lot of profit, especially out of emerging markets; so some selling is now coming in.

Do you see this correction deepening as more such churning happens from asset allocators and what could be the key for this? Could it be the US bond yields or something else?

It is always difficult to know what the catalyst will be. I expect the next 6-months to be a difficult period in asset markets including stocks markets. So my view would be to stay out of markets. We will have to see within three to six months whether it was a correction within a rising trend or something more serious.

Which one would be the hardest hit in the asset class?

I think everything will go down. But it is difficult to tell what will go down the most. The fundamentals in the emerging economies are the best we have seen in the 50 years.

The emerging economies have current and trade account surpluses, whereas the US has large trade and current account deficit. The emerging markets: the Eastern Europeans, the Russia especially Latin America, Middle East including India had superb performances over the last three years.

So I think some profit taking could knock these markets more than the US stock market

Would it stop at profit taking or are you expecting turnaround not just in the money that is invested but in future money that might be waiting on the sidelines to get into emerging markets like India?

I think there might be some reluctance to buy in the emerging markets right now. India has become an asset class.

There are endowment and pension funds, insurance companies, and well-to-do people that will say that they want to have some money in India. That money will stay and buy more as the market comes down.

At the same time in all asset markets, whether it is gold or silver or sugar you have momentum players. When these momentum players see the markets wobble or down, they will sell these markets so that they can have big impact on pricing.

Where will the tide of money turn to? Will it go back to developed markets like Europe and America or into markets, which haven't performed up until now like Japan?

After the correction that I am expecting the money will come back mostly into emerging economies.

I think for the next 5-10 years the emerging stock markets, including India will outperform the US.

If I were not a market timer then I would rather have all my money in India. The economic prospects in India are potentially very good. Indian economy has potential for substantial growth.

But immediately from low level it may drain liquidity from the financial markets into the real economy.

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