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US pharmaceuticals
Now, it is clear that the US pharmaceutical industry has had and still has some problems but much of these problems have already been discounted by the decline in these companies' share prices. So, for investors who want to have an exposure to the US, I would recommend to buy a basket of US pharmaceutical companies.
The last investment theme, I would like to discuss, are Taiwanese shares. Why? In 2003, I began to recommend the purchase of the Nikkei Index when it was around 8000 and after it had declined from 39,000 in late 1989. Since then it has doubled in value.
The reason I liked Japanese shares at the time was that investors' sentiment about the outlook for the share market was "extremely" negative and that cash positions among institutions and individuals were very high. But most importantly, the dividend yield on the Nikkei Index was higher than the yield on Japanese government bonds.
Taiwanese stocks
Looking at the charts we can note: a) Taiwanese shares have grossly under-performed Asian shares since 1998; and b) that the dividend yield on stocks is now about twice as high as the yield on Taiwanese government bonds.
Lastly, the Taiwan Stock Exchange Index, which hovers around 6,500 is down from over 12,000 in 1990! Just, as a side, if the Dow Jones Industrial Average were to decline to half its 1990 level it would trade at just 1,200!! So, at least on a relative basis, Taiwanese shares look like a life time buying opportunity!
A word of caution: All asset markets (except for the US dollar and US bonds) have been very strong in the first ten days of January and I expect a correction to unfold in the second half of January, which will last at the very least into February.
What concerns me most is that we are in the midst of a real investment rage, which in my opinion cannot offer to the contrarian investor particularly attractive entry points in asset markets. Maybe a good time to short assets!
Dr Marc Faber
