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Bram de Haas
Bram de Haas
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Ray Dalio: Invest in China

Summary of Ray Dalio's Bridgewater discussion of investing in China

August 08, 2019 | About:

Ray Dalio (Trades, Portfolio) is the founder and chairman of Bridgewater Associates, possibly the premier hedge fund in the world. He's well known for his all-weather strategy as well as his recent book, "Principles," which ascends the realm of finance. Bridgewater released a video this week in which Dalio extensively discussed the merits of investing in China. I've summarized Dalio's key points, but the full video below is definitely worth watching.

Ray Dalio (Trades, Portfolio) has been going to China since 1984. He has participated in and seen the evolution of the country. The people's character and creativity made them the greatest economic miracle of all time. Per capita income increased by 26x since that time. China's share of global GDP went from 2% to 26%. Its poverty rate plunged from 88% to 1%. It is now a comparable power to the U.S.

The conflict between China and the U.S.

Dalio said a conflict between China and the U.S. makes total sense in a historical perspective. Lately, he has studied the rise and fall of reserve currencies. When there is a rising power challenging an existing power, there is going to be a conflict. In history, this has often resulted in a war, which does not seem to be Dalio's baseline expectation. The winner of the conflict has set the new global order. No one wants to challenge that power until there is a rising power again.

Dalio doesn’t argue that there will be a war, but it is a natural conflict. The question is how it is best dealt with. The trade war is just one symptom of this conflict that is actually much broader in scope. Dalio shows a chart illustrating the rise and fall of four reserve currency Empires:

The U.S. is in decline while China is coming up. Dalio calls this is a very classic pattern.

Should you have China in your portfolio?

Dalio asked several rhetorical questions: Would you not have wanted to invest in the Dutch as they became the top power? Would you have wanted to avoid investing in the U.S. as it was rising to become the top power?

He added that he also believes in diversification. Dalio also said that in investing he notices a bias against doing new things. Institutions are late to move into China because of that.

Is timing an issue going into China?

The markets reflect the good and the bad of current events. If you wait for everything to be crystal clear, stocks will be more expensive.

The question is: Will we go to war?

If we go to war, that’s a different story. Dalio said he doesn't think we will go to war. Now is the time to invest in China. It is opening its capital markets. You can be early, or you can be late, he said.

China is also getting included in the MSCI index, and that will accelerate investment in the region.

Is China risky?

Dalio said every place appears risky. He views Europe as risky. Its monetary policy is out of gas. There is political fragmentation. It is not participating in the technology revolution.

The U.S. is very risky as well. Due to the wealth gap, the political system, the conflict between socialism and capitalism, the fragmented decision making and the absence of monetary firepower.

Emerging markets have their own distinct risks. China has its own distinct risks. It is no less or no riskier than other markets.

What is riskiest is not having good diversification. China has more flexibility regarding monetary policy. Not investing in China is very risky -- Dalio is adamant that you need to allocate there, but realizes this is a controversial stance.

Watch the video below:

Disclosure: no positions

About the author:

Bram de Haas
Bram de Haas is managing editor of The Special Situations Report and Founder of Starshot Capital B.V.

Visit Bram de Haas's Website

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