An exclusive Crux interview with
Marc "Dr. Doom" Faber
Of all the investment "gurus" featured in The Daily Crux, few are more popular or more respected than Dr. Marc Faber.
Nicknamed "Doctor Doom" because of his often dire financial forecasts, Faber is one of a kind. He was born in Switzerland, but now calls Northern Thailand home. He is a money manager, institutional investment advisor, and the editor and publisher of the popular Gloom, Boom, & Doom Report. He's a fixture in the Barron's annual Roundtable discussion with the world's best investors.
Faber has been in the news recently for his claim that we are facing "the end of Western civilization as we know it." That bloated governments like the U.S. have spent far too much money, instituted far too many entitlement programs, and are now debasing their paper currencies in order to pay for it all. Faber expects high rates of inflation as a result.
Faber is much more bullish on Asia over the long term. We recently interviewed the good Doctor to hear some of his favorite ideas on how to profit from the rise of countries like India, China, and Vietnam.
You won't hear about these stocks in the mainstream financial media... And several of the small stocks you'll read about below will be giants years down the road.
The Daily Crux: Marc, before we get started, we wanted to compliment you on your latest Gloom, Boom, & Doom issue (titled "The Great Reflation"). It's fantastic.
Marc Faber: Thank you.
Crux: Most of our readers know the U.S. has built up an enormous amount of debt, and that we're likely facing higher interest rates and inflation down the road.
Instead of focusing on those issues, we'd like to discuss the big trends you see in Asia over the next five to 10 years.
We found our readers are interested in these ideas, but there's a lack of good information available. Could you highlight some of your favorite trends and stock picks?
Faber: Yes, absolutely.
Crux: One theme you've discussed in your writings is the boom in Asian tourism. Could you explain why this is something folks should pay attention to?
Faber: Well, when countries become richer – in other words, when GDP per capita goes up – usually people start to travel. That's often one of the first things they do.
In Asia – as was the case in Europe – the introduction of budget airlines has really helped to increase tourism.
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When Japan opened up in the 1950s and 60s, there were very few Japanese tourists going overseas. Taiwan and South Korea were in similar situations when travel restrictions were removed in the 1980s.
Now the departure rate – the number of individuals traveling outside their country – in Japan, South Korea, and Taiwan is 20% or higher.
But in places like China, it's still 2%. In India, it's probably closer to 1%.
So over time I think that there will be a trend toward more traveling overseas and also more traveling inland. As airport infrastructure improves and more budget airlines come on stream, domestic travel will increase. People will be able to afford to take long weekends… to go away for three days to the beach somewhere or to the mountains or what not.
So I think that this trend is going to last for a very long time. In China, I don't think the departure rate will go to 20% any time soon, but it could easily go from say 2% to something like 10%. So that would be over 130 million Chinese traveling around the world.
Crux: Have you seen a lot of that inflow in Thailand?
Faber: Well, tourists here come from everywhere in Asia, but we have an increasing number of tourists from China, India, Eastern Europe, and especially the Middle East. You see many more Middle Eastern tourists around.
It's very similar to what you see in New York. Fifteen to 20 years ago, you saw very few Indians on Madison Avenue or Fifth Avenue, but today you see a lot of them.
So there's a huge increase in tourism is Asia. In fact, last year for the first time air passengers in Asia exceeded air passengers in North America including Canada.
Crux: We know stock markets around the globe are overbought in the short term, but are there any specific companies you like to take advantage of the trend in tourism?
Faber: Well, we own several hotel companies in Asia, including Shangri-La Asia (symbol HKG: 0069) and also Hongkong and Shanghai Hotels (symbol HKG: 0045).
The stocks mentioned here trade primarily on foreign exchanges.
Stock symbols preceded by "HKG" trade on the Hong Kong Stock Exchange, "BAK" on the Stock Exchange of Thailand, "SIN" on the Singapore Exchange, "BOM" on the Bombay Stock Exchange, and "JAK" on the Indonesia Stock Exchange.
U.S. investors can purchase these stocks through a number of online and traditional brokers that specialize in international markets. The Daily Crux does not endorse brokers, but Interactive Brokers allows U.S. investors to buy stocks in over 80 foreign markets. The company regularly receives performance awards from popular financial sources like Barron's.
In Thailand, we have a very successful hotel company called Minor International (symbol BAK: MINT). So there are quite a few choices in that industry that should benefit directly from this trend.
Another sector – you could say a special sector of the hospitality industry – is hospitals. People don't exactly go on a holiday to hospital, but health tourism is a rapidly growing business. It's much cheaper to be treated in Asia than in the Middle East, Europe, or the United States.
So we have a lot of foreigners coming to Asia for health reasons.
Crux: Aren't there a few large hospital stocks in Thailand to play the medical tourism idea?
Faber: There are two large ones actually. One is Bumrungrad (symbol BAK: BH).
And the other one is Bangkok Dusit Medical Services (symbol BAK: BGH). There's also a large one in Singapore named Parkway (symbol SIN: P27).
Another tourism-related sector that I like is the airport companies. Obviously, as tourism increases, the need for airlines increases.
I think there are four great airlines in the world at the present time. There's Emirates, which is based in Dubai, and Qatar Airways, both of which are private companies. Then you have Cathay Pacific (symbol HKG: 0293) out of Hong Kong and Singapore Airlines (symbol SIN: C6L).
Another airline I like is Thai Airways International (symbol BAK: THAI). The company is of somewhat lower quality than the four I just mentioned, but the stock is probably the most interesting at the present time.
Airport companies are another great way to play the trend.
In Singapore, the airport is basically owned by the government, but there are some interesting service companies, like engine maintenance companies and catering companies.
Singapore Airline Terminal Services (symbol SIN: S58) is one I like. SIA Engineering (symbol SIN: S59) is another one… they overhaul engines. That is a world-class company, by the way. The stock has a 4.44% dividend yield, but in Singapore dollars I regard this as a reasonable dividend. I think the stock is a little pricey at the moment, but as a long-term investment, that's a stock I would want to own.
And then in Thailand we have the airport authority known as Airports of Thailand (symbol BAK: AOT). I don't think it's a particularly well-run company, but they have a new managing director who may do a better job.
Another I like is Samui Airport Property Fund (symbol BAK: SPF). They basically own the airport in Samui. It pays a dividend yield of about 8%, and that's a guaranteed dividend.
Crux: That's something you won't find in the U.S. too often, a guaranteed dividend.
Faber: Yes… That's the point. Of course, that doesn't mean there isn't risk. Thailand isn't problem free, but show me a country that is.
In Thailand, we have a lot of companies that still pay dividends in the neighborhood of 5% to 7%.
Crux: That's significantly higher than a lot of stocks in the U.S. Would you say there's a different attitude toward returning cash to shareholders in various parts of the world?
Faber: Well, I think the primary difference is that some countries have a tradition of paying out higher dividends. Exactly why I'm not entirely sure. But in general, when I look at the shares in Asia – in Hong Kong, Singapore, Thailand – the dividend deals are relatively high compared to the U.S.
Crux: That's interesting… something for investors looking for more income to consider.
Marc, would you mind discussing your thoughts on some infrastructure trends and companies in places like India and China?
Faber: In India, the infrastructure plays have gone up quite a lot already, so I would be a little bit careful there. But I would imagine for long-term investors –given the tremendous need for infrastructure in a country like India – that Larsen & Toubro (symbol BOM: 500510) would be a decent play.
There are several engineering companies in Asia that have potential, but honestly, I'm not sure which ones would be the best. I would much rather play the infrastructure trend through water companies, like Hyflux (symbol SIN: 600) in Singapore.
Crux: Is Hyflux a well-run company?
Faber: Yes, I think so.
Crux: Could you discuss the basic business of Hyflux for readers who aren't familiar?
Faber: Basically, they build water processing plants and they also have desalination plants. They have a contract in the Middle East and contracts in China and all over the place. So it's a fairly large, successful company.
There's also a separate play we own called the Hyflux Water Trust (symbol SIN: D7TU), that yields about 8% right now. They basically do treatment systems for water purification, wastewater treatment, water recycling, filtration, and so forth.
In Thailand, there's another promising water company, Thai Tap Water (symbol BAK: TTW). It's a water utility that also own water rights, and the yield is 6%.
Crux: Owning infrastructure through water is an interesting idea… There's nothing more vital than water infrastructure.
Crux: How about agriculture and farmland? Do you have any favorite names in that space, for the long term?
Faber: The plantation companies in Indonesia are a decent play. One I like here is Sampoerna Agro (symbol JAK: SGRO).
Crux: Many of the Indonesian agriculture plays produce palm oil, correct? [Note: Palm oil demand in China is ramping up due to its use as a cheap cooking oil.]
Faber: That's right. Malaysia also has several palm oil companies, but they're more expensive because their land is more valuable than in Indonesia. Another agriculture play I like is in Singapore. It's called Indofood Agri Resources (symbol SIN: 5JS).
Now admittedly, I'm not an expert in this area, but I do own Sampoerna Agro. I also own a company in Thailand called Univanich.
Crux: Is that an agricultural company as well?
Faber: Yes… Univanich Palm Oil (symbol BAK: UVAN). The yield on that one is about 6%.
Crux: Those are some great dividend yields.
Faber: Yes, definitely. That was my point earlier. There are some problems in Thailand, but at least you're paid well to wait… and over time the currency is likely to appreciate against the U.S. dollar as well.
Crux: On that tack, let's move on to the U.S. dollar…
Editor's note: You can access the second half of the interview here.
In the meantime, I encourage you to check out the Gloom, Boom, & Doom Report. It's written for the seasoned contrarian investor, but anyone looking for "no BS" market analysis will find it full of great ideas. The March issue, titled "The Great Reflation" might be the most important thing you'll read about the market all year. You can learn more about the Gloom, Boom, & Doom Report here.
You can also learn about Faber's book on the rising economic power of Asia in Tomorrow's Gold: Asia's age of discovery.