Ray Dalio, the billionaire founder of world’s largest hedge fund, Bridgewater Associates, said now is the time to invest in beaten-down Chinese stocks as Beijing works to shore up the economy.
“The time to buy is when everyone hates the market and it’s cheap, which is now the case in Chinese equities,” especially as there are signs that the country’s economic leaders are preparing stimulus measures like quantitative easing and debt restructuring to deleverage the economy, he said in his LinkedIn blog on Tuesday.
“China’s problems … are manageable by Chinese leaders if they do their jobs well by being both smart and courageous. I think those who guide policy in China will eventually come around to dealing with the problems well,” he wrote.
Dalio’s remarks came as Beijing’s policymakers intensified efforts to revive the world’s second largest economy, which has been hobbled by a property market downturn, local government debt problems and deflation risks.
The central bank has lowered key interest rates and reserve ratio requirements in the last few months, and is now widely expected to resume buying treasury bonds to inject more liquidity into the economy.
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Chinese stocks are now looking to recoup some US$10 trillion of losses from the last three years, with valuations hovering near a decade-low. The MSCI China Index tracking more than 700 companies traded at home and abroad has rebounded 12 per cent from a January low, ranking it among the best performers among major global peers during that period, according to Bloomberg data.
Foreign investors’ appetite for Chinese stocks continues to recover as they become less pessimistic about the prospects of a recovery. Offshore funds bought 22 billion yuan (US$3 billion) of yuan-denominated stocks in March, according to Stock Connect data, adding to 60.7 billion yuan of net purchases in February that snapped a six-month outflow from the onshore market.
To be sure, China’s problems could be still be cause for concern as its leaders need to restructure mounting debts or risk a “lost decade” like Japan’s, Dalio cautioned in a separate blog last week. Beijing needs both a deflationary deleveraging to reduce debts and easier monetary policy to support growth, which would be “difficult and politically dangerous” to engineer.
Meanwhile, geopolitical conflicts will also continue to drive global investors to diversify or leave China and to fear being discriminated against globally for being friendly to the country. That means China will continue to face difficulties attracting investment, said Dalio.
Bridgewater Associates, which manages over US$124 billion in assets, has been offloading Chinese shares in its portfolio in recent months. The hedge fund sold all of its stakes in low-cost retailer Miniso and wealth manager Noah Holdings in the final quarter of 2023, and trimmed its positions in Chinese equities, including PDD Holdings, Trip.com and Yum China, by 10 to 20 per cent.
The hedge fund had earlier joined a global exodus by getting out of 10 stocks including EV makers Xpeng and Li Auto and biopharmaceutical players HutchMed and BeiGene.
Still, none of the problems in China have outweighed its investment appeal, Dalio said, adding that the holy grail of investing is to have good uncorrelated return streams, and China will remain one of the core positions.
“To me the key question isn’t whether or not I should invest in China so much as how much I should invest,” he said.
