Investment guru Marc Faber warns that investors are too bullish about the U.S. and that the American currency is overvalued.
“Investors are too bullish about the U.S. and far too negative about emerging-market economies. I also think they are neglecting Japan and European equities so anything outside the US is probably from my perspective more attractive,” he told India’s CNBC TV 18.
The U.S. dollar “is too strong” and “is probably overvalued at this level already,” said Faber, also known as "Dr. Doom" for his often pessimistic and apocalyptic market predictions.
“It may overshoot further which may then cause a problem for the Federal Reserve because as they said they basically plan to have three interest rate increase in 2017. But if the dollar is too strong maybe they can't do it,” he said.
The Federal Reserve "can have other central banks print money for them for a while and then in 2017 possibly the dollar becomes too strong and the U.S. economy rather weakens than strengthens then they can print again themselves. They have an excuse," he said. "I still maintain that central banks will keep on feeding the world with excess liquidity," he said.
“Valuations in the U.S. are at historically very high levels whereas elsewhere they are relatively inexpensive valuations. So, I would focus on foreign markets and I would focus on sectors that were out of favor for a long time,” he said of investing strategy for the new year.
Oil and mining companies, financials and tech are among his favorite sectors for 2017, he said, adding that he sees a lot of potential in agricultural commodities.
“People will tell you that emerging markets performed poorly in 2016 and that the U.S. was the only game in town. But let me just say that in U.S. dollars in 2016 the Russian index was up 51 percent, Brazil 63 percent, Kazakhstan 66 percent, Thailand 19 percent, Indonesia, 19 percent, Karachi 40 percent, Vietnam 30 percent,” he explained.
“Some markets have actually performed very well. We turn to individual stocks some stocks have done very well in 2016 in particular the sectors that were very depressed like oil and gas and mining companies that is until recently have weakened but on the year they are still up strongly,” Faber said.
Meanwhile, U.S. stocks rose on Thursday, led by gains in bank shares, a day after the Fed raised interest rates for the second time in nearly a decade, Reuters reported.
The Fed sees three rate hikes next year instead of the two foreseen in September, partly as a result of the fiscal stimulus expected to hit under President-elect Donald Trump. Trump's spending plans could trigger inflation and bring about higher interest rates, making banks a likely winning sector in the new administration.
The S&P 500 has risen just under 6 percent since the Nov. 8 election, but its banks component has risen almost 25 percent since. The Dow Jones industrial average came within 50 points of hitting 20,000 for the first time.
Faber isn't the only respected economic voice to warn about the recent market rally.
Investment guru Carl Icahn thinks the stock market’s celebration since Donald Trump’s presidential victory may have “gone too far” as the Dow Jones Industrial Average nears the 20,000 milestone.
"It's gone too far," Icahn recently told Poppy Harlow on CNN. "I personally think it's a little overdone," Icahn said about the stock market rally.
(Newsmax wire services contributed to this report).