US Fed not expanding asset base; dollar overvalued

The US Fed is not expanding its asset base. While European Central Bank and Bank of Japan are doing so, flows out of Europe and Japan will lead to weakening of the euro and yen and strengthen the dollar.

Contrary to popular opinion that emerging markets have performed poorly in 2016, any market outside the US looks very attractive now especially in terms of valuations. Investors are too bullish about the US, negative about emerging markets, and are neglecting Japan and Europe.

India is much better placed and has greater potential to grow than Western economies, Faber said. Corporate profits have still room to expand.

Fundamentally, the dollar is overvalued and valuations in US markets are at historical highs, he said. Any further strengthening of the US dollar will curb the US Federal Reserve’s capability to raise interest rates.