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Interview: Felix Zulauf
Posted By Barry Ritholtz On January 8, 2013 @ 8:49 am In Investing,Markets | Comments Disabled
Joe Dedona, head trader at our Institutional Desk, sat down with world-renowned money manager Felix Zulauf to get his view on global markets. Felix discusses the European debt crisis, the rebound in Chinese equities, the recent Japanese election and its impact on their markets, the U.S. markets in light of our fiscal issues, and much more.
Felix Zulauf was born in 1950 in Switzerland. He started his career started in 1971 as a trader for the Swiss Bank Corporation where he mastered research and portfolio management at leading investment banks in France, Switzerland and USA. After that he worked at UBS Switzerland where between 1977 and 1988 he was the manager of UBS’s global mutual funds, and a leader of the institutional portfolio management division. In 1990, he started his own hedge fund “Zulauf Asset Management,” where he continues to serve as President.
Mr. Zulauf is widely known for being a long-standing member of the Barron’s Roundtable where every year, for the last 25 years, he shares with the world his views on investment and economic matters. Felix Zulauf is an advocate of the thesis that economies and financial markets move cyclically. This view and belief has helped him to preserve capital during difficult times.
Dedona: Looking at China, Felix, you were bearish at the start of 2012, and then very presciently called a bottom in September. Both the Shanghai Composite and Hang Sang have rallied very strongly since that call. What is your current outlook on China ?
Zulauf: The new government in China wants to maintain 7-8% growth, and wants to take steps to ensure this. They may increase public spending and relax monetary policy. This won’t come anywhere close to the stimulus of 2008, as China is still suffering the negative side effects. You might see a temporary improvement in economic indicators, but that’s it. The real level of growth in China is probably only 3-4%. That said, there is still perhaps 20-30% upside in Chinese equities, particularly in the first half, although you won’t see the sort of sustained move we saw off the 2008 low there.
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Dedona: How does Japan look right now? We note you called for shorting the Yen at a Barron’s conference in October – again, a very prescient call.
Zulauf: Japan’s economy is not doing well and still suffers from deflation. The pronounced deterioration of Japan’s current account and the disappearing ability to finance her own large budget deficits are forcing some important changes. The new government in Japan, led by the LDP and Prime Minister Abe, has a 2/3 majority in parliament and can push through their own will without any problem. Abe wants some increased deficit spending, on top of a budget deficit that is already near 10% of GDP. He wants the Bank of Japan to finance a big part of it by printing new money and thereby weakening the Yen and targeting 2% inflation. If the BOJ doesn’t comply, they have basically been told they will lose their independence as a central bank. The spending will increase deficits further and weaken the currency, which should improve exports. I see Dollar/Yen going to 120 within the next 2 years, and the Yen weakening decidedly against all major currencies.
Dedona: So you’re clearly still constructive on China and Japan …
Zulauf: China’s market rebound should at least last during the first half of this year. There is still another 20% to go. After a consolidation and pullback, you can buy FXI here to play it. As for Japan, I am much more bullish as nobody owns Japanese stocks. The total market cap of the market there is one quarter of what is was 23 years ago. If the currency continues to decline against all the others, there will be a tremendous lift to Japanese equities. The Nikkei has at least another 20% upside in 2013 and could do more and last longer, all in local currency terms.
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