Emerging Markets May Rally 15-20% – Marc Faber

Marc Faber, the editor and publisher of the Gloom Boom and Doom report is of the opinion that emerging markets might rally another 15-20% from these levels.

Marc Faber also said that the new stimulus package announced by the US was not going to work. He is of the opinion that its government intervention into the economy which makes things even worse.

Marc Faber feels that in the long run inflation in US might go very high even as they are fighting to avoid deflation now. The problem with US according to Dr. Faber is that when they have a problem they print money and if the problem is not solved they print even more money. This is inflationary in the long run.

Marc Faber feels that the emerging markets were in oversold zone in November and have made a decent rally since then. Since the liquidity position is improving in the global markets and some money is coming back into equities there might just be some more upside left for the markets.

Marc Faber however feels that the markets might go lower in the second half of 2009. He feels that the trigger for this would be the fact that the world will realise that the economy will not improve in the secong half of 2009 as everyone is expecting. However, Dr. Faber is not sure if the markets would go back to the lows of November. According to him that depends on a number of other factors.

US has been the highest spender on packages. But doubts remains on if it will help the economy. The infrastructure boost part of the package would still seem good. But any attempt to boost consumption in order to stimulate the economy is a bad idea. The reason being that excessive spending and consumption got them into the problem in the first place.

For India a package directed towards infrastructure spending is a great idea. There is still under investment in infrastructure. But the problem is that the package announced by the government so far is very small. It is less then 1% of the GDP. So in my opinion it would not be something which could help boost the economy to a great extent.

For China the package is also directed towards mainly infrastructure, healthcare and education. This might be a well directed package but will surely not stem the slowdown now. The packages would typically take time to percolate in the real economy.

Investing or Trading:

The current market conditions require one to shift his strtegy. One should now be looking to trade the market rather then look for long term investing.

The reason being that the markets would not edge up higher for long. We will only see markets getting oversold on flurry of bad news and then making few days or weeks of smart rally. Thus by trading on selected stocks one can make anywhere between 20-100% in a matter of weeks.

IVRCL infrastructure for example got down to Rs. 50 levels in November carnage and subsequently it made a rally to Rs. 150 in a matter of few weeks. This kind of opportunity will come in plenty in these markets and one can capitalize on these to make money.

Only when markets stabilize and remain in a very small range for a very long time can we get some indication of a bottom in place. That would typically be a time to invest in good companies for long term.

Large Caps or Mid Caps:

There is no doubt that large caps would outperform compared to mid cap stocks in the next few years. While the multibaggers can be mostly found in mid- cap stocks for now its advisable to remain in large cap stocks if one does want to remain invested in equities.

The reason being they have better access to funds and higher cash reserves which are essential for survival in this enviornment.

Good Large-Cap Stocks to trade on:

* Oil & Natural Gas Corporation Ltd.
* Larsen & Toubro Ltd.
* Steel Authority of India (SAIL) Ltd.

Water Sector Stocks Which Look Interesting for Long Term:

* Kirloskar Brothers Ltd.
* Subhash Projects & Marketing Ltd.
* Mount Everest Mineral Water Ltd.

Emerging Industries:

* Nanotechnology
* Alternative Source of Energy
* Water and Water Infrastructure

Hot Commodities:

* Agricultural Commodities
* Crude Oil
* Copper

I would personally not take any long term positions as of now. Commodities are in a downside now but the long term fundamentals for crude and copper are very strong.

The stocks mentioned are good in my opinion. However, investors should do their own research before investing in these stocks anytime.

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