INVESTORS betting on a rebound in China's tumbling stocks are setting themselves up for more losses, according to Marc Faber, who told investors to bail out of United States stocks before 1987's so-called Black Monday crash and correctly predicted last August the US would enter a bear market.
Faber's forecast contrasts with local stock analysts, who are as bullish as ever even after a 51-percent plunge in the CSI 300 Index since its October record. "Buy" calls still make up two-thirds of all recommendations for Chinese stocks, virtually unchanged from the market's peak, according to Bloomberg News data.
"I just wouldn't buy," Faber said in an interview from Bangkok. "When a bubble bursts, you only hit bottom when people totally give up and vow they'll never buy stocks again. People are still more worried they'll miss the next rally."
China's rout has wiped out more than US$2 trillion in market value after the government raised interest rates six times last year to cool the economy and commodities prices surged, fanning inflation. The CSI 300 more than doubled in 2006 and 2007, making its shares the world's priciest and prompting the government, Alan Greenspan, Warren Buffett, and Faber, to warn of a bubble.
The last time Chinese stocks fell by half - from a June 2001 high - the Shanghai Composite Index took four years to reach its low.
More than 60 percent of China's retail investors are "confident" about the performance of the nation's stock market in the next two years, the Shanghai Securities News said last Friday, citing a survey it conducted with StockStar.com, a provider of financial data.