Commodity guru Jim Rogers believes that most emerging markets, will see a bear market for some time to come, adding that only bull market likely is in commodities like raw materials. He further says that well managed EMs, with raw material resources will do better. He prefers agri commodities to copper and zinc.
Rogers believes that hot money will pour out of India in tandem with other EMs. The recession in the US and the tightening liquidity will affect EMs, India's BoP problems are a cause of concern, he says.
He further says that gold is likely to see a 10-15 per cent correction, and that he plans to buy on dips. Rogers will stay away from hedge funds as he expects these to suffer this year.
Excerpts from CNBC-TV18's exclusive interview with Jim Rogers:
Your reports show that you are not too optimistic on emerging markets or India for that matter, what do you think has changed?
That's right, I have said it before that most emerging markets got into a panic stage, almost manic stage and so I sold out of every emerging market except China. As you know I have owned many emerging markets for almost 15-20 years, but they all got expensive together and are now having a correction, which basically would be a bear market for most emerging markets.
Tell us more about global liquidity and about how rates are going up which makes you bearish on emerging markets as an asset class?
Certainly the liquidity sector is a part of it, there is too much liquidity and now most Central Banks are cutting back on liquidity. First the US economy is going into recession, the western markets are at rest, economies are going into recession and that will have an affect for a while.
It has been a difficult month for other asset classes as well, commodities or even developed markets, what would you use this weakness to buy into?
The only bull market that I know around the world is commodities, raw materials, but even some raw materials will have to correct. I wouldn't buy zinc or copper right now but some of the agricultural commodities are very attractive.
What is the concern on copper and zinc?
Fundamentally, I do like them and there is a major bull market in commodities, which will go on for a few years in commodities. But zinc went up 500-600 per cent in 2-3 years and anything that goes straight up and never has a correction is not a place to be into for a while.
When you speak of bear market across emerging markets, do you expect it to be a bear market that comes in the midst of a larger bull market or do you expect it to be a protracted one?
Some of them will come out of it okay because the ones that have raw materials, natural resources will do well, if they are well managed. This is because there is a secular bull market going on in commodities but unless one has a major commodity position or natural resource position and are well managed, one might not do well for quite some time.
In that sense would you back Russia more than India?
I said well managed, and Russia is not well managed in my view. Essentially the mafia runs it and second, commodities in Russia are peaking. The Russians have acknowledged that their oil production is now peaking and their production in metals is also peaking and so I would be careful of Russia.
I would be much more optimistic about countries like Canada, because they are well managed and do have raw materials. Even some of the South American countries will do better in the future than the ones that don't have raw materials.
If indeed for the next couple of months there are lower levels in the emerging markets do you think that would make them more attractive or tactically would you stay away from this space?
I am not a very good trader, in fact the world's worst trader and I am a horrible market timer as a matter of fact. Emerging markets may be setting themselves up for a rebound any day, any week because they have done a massive correction but unless one is a good trader and a good market timer, I would stay away.
But for those who are good traders they can grab them at the bottom and rally for 10-20-25 per cent, but I would get out on those rallies.
What makes you bearish on India in particular?
India is no more bearish or bullish than the others in this context and India has had an equally sharp rise as some of her neighbours and competitors and other counties of the world.
One is going to get hurt whether the Indian economy is in good shape or not and it won't matter for all the hot money that poured into India, it's going to be pouring out and it is going to affect a lot of local investors.
Those who are new to this markets and don't understand this are going to get hurt and they are going to want to get out too.
It is not that I am necessarily picking on India, I have never been bullish on India as some other countries but India is not in any worse shape than the others. India does have a balance of trade problem, which some of the countries with raw materials don't.
How do you read the Hedge fund activity across the world, over the next one-year or so?
There has been a great boom in hedge funds, but I would stay away from them because there are going to be many which are going to fail because of incompetence or fraud. It is a place where I would not be investing. As many of them unwind and lose money and go broke and that too will have an affect on the markets everywhere.
We have something like 20,000 hedge funds in the world right now and we don't have that many smart 29 year olds in the world, so this is a phenomena, which has to correct also.
Any thoughts on the developed equity markets and what Fed and its actions might do to movement over there?
United States may already be in recession as far as I know but we will certainly have a recession in US later this year, or the next if it is not already there and that will affect the other developed markets.
Federal Reserve is not in charge of interest rates anymore, the market is too big even for the Federal Reserve and I don't pay too much attention to them going forward. I guess if I were to invest in a developed market, I would try to find one in Asia because Asia is going to be doing better than the rest in the next 1-2 years.
How do you see gold panning out?
I own gold and gold too is being smashed with this reaction and could go down another 10-15 per cent but mind you I am a horrible market timer, so don't ask me for trading advice. I own gold and will not sell it even if it goes another 10-15 per cent and I plan to buy more but not sell my gold, certainly.
