Dr. Doom sees no credit bubble in China
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HONG KONG (MarketWatch) — Contrarian economist Marc Faber is cautiously optimistic on the outlook for China, saying he sees few signs of a mismatch between supply and supply in the real estate sector, while its fiscal policies don’t appear to be repeating the mistakes made by Western counterparts.
Faber famously went bearish on U.S. stocks shortly before the 1987 stock market crash and also forecast the 1997 Asian financial crisis. In 2002 he authored Tomorrow’s Gold, which spelled out in prescient fashion the rise of Asia in the global economy.
Too slow revaluation
Beijing, he says, made the mistake of allowing its currency to appreciate too slowly against the U.S. dollar.
Being abolished the yuan’s peg to the dollar in 2005 and now allows the currency to fluctuate 0.5% from a central rate, which the People’s Bank of China sets daily. Since the revamp, which included a 2% revaluation, the Chinese currency has appreciated about 21% against the dollar.
Looking ahead he sees the Chinese currency doubling in value against the dollar, following a pattern similar to the Japanese yen’s appreciation against the greenback in the early 1970s.
Faber says investors should acquire Asian equities on pull-backs as global growth momentum shifts to the East. Although he’s skeptical about growth in the global economy, he remains upbeat on natural resources
Declines in the U.S. dollar are symptomatic of the underlying weakness of the U.S. economy.
Households in emerging markets look set for a meaningful rise in wealth while those in most developed economies should see their fortunes stagnate and even decline.
That’s a reversal he said of the last 200 years when more advanced nations saw their real GDP per capital rise 20 times “as the West ripped off poor countries”.
“Your children who live in the developed world, in Western Europe and the U.S., they may not sink to bottom of the ocean economically,” Faber told the crowd, “but in my opinion in real terms, real GDP per capita, it will not increase, if at all I think it will decrease slightly.”