‘Preserve Capital In 2022’

‘For someone who wants to invest for the future or his family, diversification is necessary.’
‘Diversify across asset classes — equities, gold, real estate, fixed income, commodities, and even cryptocurrency.’

As the world prepares to welcome 2022, Marc Faber, editor and publisher of The Gloom, Boom & Doom Report, tells Puneet Wadhwa/Business Standard how investors should approach the financial markets, his investing strategies, and the road ahead for Indian equities.

It has been all boom in global equity markets for most of 2021. Will they perform with the same enthusiasm in 2022?

The enthusiasm of investors will not vanish overnight. It is a process that takes time, and maybe in India, it will stay at a high level for a while. This is because the Indian economy is one of the few across the world that is still expanding despite headwinds.

The Indian economy can outperform the rest of the world economy; the stock market will continue to do well — though not as well as it did in 2021. Globally, we need a market correction.

There is too much optimism among investors who do not have any experience. They have invested in cryptocurrency, companies that do not have earnings, and are Reddit readers. This is not a good sign.

Equities, commodities, cryptocurrency, and inflation — everything is on the rise. Will it all end badly for investors in a year or two?

If we look at 2021, one sector that has not done well is gold shares, metal stocks, and value stocks. Value stocks have underperformed across the globe.

What has done well in the US is the FANG (Facebook, Alphabet, Netflix and Google) and FANG-related stocks, stocks like Tesla, and semiconductor stocks.

We are at a juncture in the market where these favourites of investors where hedge funds are heavily weighted, especially the FANG stocks, will underperform, and the money will shift to value stocks. Europe and Asia will outperform the US in 2022.

How big a risk is the Fed policy?

The US Fed talks a lot. Western central banks are basically money printers. (US Treasury Secretary) Janet Yellen’s view is that there is inflation due to Covid. However, my view is that the inflation is due to money printing and not Covid.

The US Fed and by extension, the European Central Bank are printing money. So, there was a liquidity bubble that allowed people to spend and not to work. The supply of goods went down and the quantity of money went up.

In my opinion, the US Fed will not fight inflation. The real rate in the EU and the US is negative. In such an environment, inflation will not come down. The US will need to have interest rates of around 6 per cent to cool down inflation. How realistic is that? The entire world financial system will collapse.

While the US Fed looks at tightening its policies, the Reserve Bank of India plans to remain accommodative. Do you think global central bank policies will now become divergent?

In 2018, (Fed chief) Jerome Powell wanted to wind down the US Fed’s balance sheet. The move did not last a year. We had liquidity problems in the repo market. As a result, the US started to print again — and this was long before Covid surfaced.

The US Fed may tighten for a while, but it will realise that the move will create problems in the financial system. The ECB has been printing more money than the US, and that’s why the euro is weak.

What has been your investment strategy in the past year?

My strategy has been to diversify. I do not wish to make speculative gains and have value stocks in my portfolio. I prefer dividend stocks — therefore, I have utilities in Europe, banks in Asia, and tobacco companies.

That apart, I have resource companies in my portfolio as I believe commodity prices will not collapse. I also own real estate around the world, precious metals, and fixed income securities.

Do you own any Indian securities in your portfolio?

I own some bonds of Indian companies in my portfolio. I have held Indian exchange-traded funds. However, I have no position in India as of now.

The Indian markets are fundamentally sound, but very expensive — the most expensive in Asia. I find more value in other Asian markets.

And which markets would these be?

There is some value emerging in Indonesia, which has similar characteristics to India. Malaysia, Hong Kong, and Singapore are the other Asian markets. There are some cheap stocks even in China, where the dividend yield is around 6 per cent.

Is the hype around cryptocurrency overdone? Do you have any exposure to this asset class?

I have from time to time had positions in bitcoin. There are some advantages of holding cryptocurrency as opposed to holding gold. The crypto universe at its peak was valued at $3 trillion. Though the universe will expand, most cryptocurrencies will be worth nothing over time.

What’s your advice to investors for 2022?

Preservation of capital now becomes more important than thinking of doubling the money.

One can double their money, but will have to take the approach like playing in a casino where you can lose everything.

For someone who wants to invest for the future or his family, diversification is necessary. Diversify across asset classes — equities, gold, real estate, fixed income, commodities, and even cryptocurrency. Diversification also means investing in overseas markets.

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