In China, a huge build-up in consumer credit since the government unveiled an economic stimulus plan in 2008 would burst sooner or later, he said.
But Dubai’s property market was at a less critical phase, Mr Faber said on the sidelines of the Middle East Investment Summit in Dubai on Wednesday.
“I don’t think we’re yet in a bubble stage but we had a big rise in property prices already,” he said. “We have not reached the 2007 peak yet. We’re not in a bubble yet, but it may become a bubble in the future.”
Prices in Dubai’s property market grew by as much as 40 per cent last year as the emirate benefited from returning investor confidence and buyers from less-stable parts of the region. But as new megaprojects have been unveiled in recent months, some observers have begun drawing parallels to the previous property boom before 2008. After reaching historic highs, prices then sank by more than half as credit dried up and confidence crumbled.
In the US, both the Dow and the Standard and Poor’s markets are frequently touching new highs, while the Nasdaq has reached its highest level since the Dotcom boom ended in 2000.
“We have had this huge expansion in the S&P level since 2009. The S&P was at 666, it went to over 1,800 and at some point we will have a bear market, 20 to 30 per cent,” he said. “Since October 2011, we haven’t even had a 10 per cent correction.”
Analysts are questioning the sustainability of the stock rally as the Federal Reserve tapers a monetary stimulus programme that was until January pumping US$85 billion into the economy every month.
Mr Faber said he was invested in 10-year US treasury notes as, he believed, when stock prices declined investors would race for the relative safety of cash and treasury bonds.
In China, Mr Faber said, he was concerned about the 50 per cent growth in credit in the past five years.
“This credit bubble in China is going to burst,” he said. “The question is will it burst now or can they postpone the problem once again? Possibly, but at some point growth will slow down considerably.”
He said he was convinced annual GDP growth in China was no longer 7 per cent but more like 4 per cent.
Expectations are growing that Chinese policymakers may intervene to boost the economy in an effort to help the economy achieve its 7.5 per cent annual target.
A preliminary survey of factory data released on Monday revealed that the manufacturing sector had deteriorated for the third month running. Industrial output figures for the previous two months had also been weaker than anticipated.
- Source, The National: