Faber Pessimistic on China, Favors European Stocks: Tom Keene
“The growth rate we had in the last 10 years, which was around 10 percent annually, is going to slow down considerably,” Faber told Tom Keene and Ken Prewitt in a “Bloomberg Surveillance” radio interview yesterday. “I would rather wait to buy Chinese stocks until we see the result of the stimulus packages.”
The Shanghai Composite Index (SHCOMP) has tumbled 13 percent from its high this year on March 2, while the Hang Seng China Enterprises Index of mainland stocks traded in Hong Kong lost 16 percent amid concern the economic slowdown is deepening. The Shanghai gauge slid 1.5 percent yesterday after Bank of America Corp. joined Deutsche Bank AG and Barclays Plc in cutting economic growth forecasts for China. It rose 0.3 percent at the close today.
Government data last week showed that Chinese exports grew 1 percent in July, missing the 8 percent median estimate of economists surveyed by Bloomberg. Policy makers cut interest rates in June and July after two reductions in banks’ reserve- requirement ratios this year to counter the slowdown in the economy, which grew 7.6 percent in the second quarter, the slowest pace since 2009.
Faber is buying European stocks as declines related to concern the euro may break up create opportunities for investors. The Stoxx Europe 600 Index (SXXP) has risen 16 percent since June 4 when it closed at the lowest level in more than five months, data compiled by Bloomberg show. The gauge is valued at 11.6 times estimated profit, while the Shanghai Composite trades at a multiple of 9.6 times and the Hang Seng China Enterprises Index is at 8.1 times.
The Stoxx 600 traded at its widest premium to the Hang Seng gauge on record on Aug. 8, according to data compiled by Bloomberg going back to January 2006. The Hong Kong measure trades at a 36 percent discount to its five-year daily average, while the European index trades at the same level as its average over the same period.
European stocks have climbed for 10 weeks amid speculation policy makers will do more to stimulate growth. European Central Bank President Mario Draghi said July 26 officials are prepared to do whatever is needed to save the euro.
Hedge funds that base investment decisions on economic trends are unwinding bets against European stocks at the fastest pace in three years, speculating policy makers will step up the fight against the debt crisis. The degree by which macro funds are trailing the Euro Stoxx 50 Index is narrowing at the fastest rate since 2009, a sign managers are covering short sales by buying shares, according to data compiled by Bloomberg and JPMorgan Chase & Co.
Faber said on Feb. 2 he wouldn’t buy shares of Facebook Inc., the social-networking website that filed to raise $5 billion in the largest Internet initial public offering on record. The stock has tumbled 43 percent since the May IPO.
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