Ray Dalio seeks alpha in China. “The evolution of China has been quite something” said the billionaire investors and founder of the world’s largest and most successful macro hedge fund, Bridgewater.
Ray Dalio has been visiting in China since 1984. “I never went for making money, curiosity, you know?”, said Ray Dalio.
But today, Ray Dalio seeks alpha in China and he explains his reasoning in his privately owned media platform in Bridgewater’s research library.
“The evolution of China has been quite something”
Ray Dalio explains how he saw a different China when he was first invited to visit the country by CITIC, a window company which was authorized to deal with the outside world.
At the time the city was mostly hutongs of small poor neighborhoods explains Ray Dalio.
It was China’s rapid and successful industrialization which is partly why Ray Dalio seeks alpha in China going forward.
“Per capita income since then (1984) increased by 26 times. The share of world GDP went from 2% to 22% which is comparable power to the US” said Ray Dalio.
“The poverty went from 88% to less than 1% and life expectancy increased by 10 years” he added.
Ray Dalio seeks alpha in China with a long term vista
“China is now number one in fintech, number 3 in AI and machine learning, number 2 in wearables, number 2 in virtual reality, number 2 in educational technology, number 2 in autonomous driving”.
“They are running fast to be number one in those industries” said Ray Dalio.
“Per capita income since then (1984) increased by 26 times. The share of world GDP went from 2% to 22% which is comparable power to the US”
The crux to Ray Dalio seeks alpha in China is based on what he believes will be the economic dominance of China going forward
“China will have the largest economy in the world, the most trade in the world and the largest market capitalization,” said Ray Dalio. China global economic domination could primarily be due to China’s massive leap in the fourth industrial revolution technologies.
What that means for investors in the billionaire investors words is that,
“expected return in China will be equal to or perhaps higher than elsewhere” said Ray Dalio.
Monetary policy prudence is also another factor in the equation of why Ray Dalio seeks alpha in China
Ray Dalio believes that the People’s Bank of China has a greater capacity to be able to ease monetary policy and run fiscal policy at a higher ratio.
But not is all rosy in China. China’s small banks are in trouble and will most likely need a bailout.
“We will be looking at a very different world, in 5, 10, 15 years a very different US. Europe, Japan, and the emerging market will have big changes too” – Ray Dalio
So Ray Dalio seeks alpha in China going forward is based on what he described as a very different world in the future. Ray Dalio’s view supports the idea that there is an ongoing geopolitical shift to the east.
“We will be looking at a very different world, in 5, 10, 15 years a very different US. Europe, Japan, and the emerging market will have big changes too” said Ray Dalio.
Is Ray Dalio implying that the relentless de-industrialization in the west will continue?
Ray Dalio seeks alpha in China doesn’t jibe with the existing world order of US hegemony with the dollar as the reserve currency
So Ray Dalio’s bullish views on China is at odds with the current US administration’s goal to reinvigorating its domestic manufacturing, which has been dubbed economic nationalism.
The fact that Ray Dalio seeks alpha in China is somewhat controversial
Ray Dalio admits that he is promoting a controversial investment strategy.
Ray Dalio seeks alpha in China is an investment strategy with risks
“I have studied the last 500 years of economic history and I have looked at the last 1,000 years and what I have seen over and over again is that when there’s a rising power challenging an existing one then there is going to be a conflict” said Ray Dalio.
“There is a global world order. And the way that usually happens is there is conflict, a war quite often and then after the war whoever wins the war gets to set what the global world order is”, he said.
“Then there is a period of peace because nobody wants to fight that country challenge” added Ray Dalio
“That has happened 16 times in the last 500 years and out of 12 of those times there has been war” warned Ray Dalio
“I am not saying there is going to be a war, but that is a natural development, china growing and expanding”.
“Not investing in China is very risky” – Ray Dalio
Ray Dalio seeks alpha in China is based on diversification
“I believe in diversification that China is a competitor of the US and if you are diversified you want to be having bets on both countries” said Ray Dalio.
Ray Dalio points out that there is a tendency of bias not to do the new things.
“Market represents ebbs and flows if you wait for everything to be crystal clear, you’ll pay a higher price than if you don’t” he added.
So Ray Dalio seeks alpha in China and the largest risk is that two nations end up in a war.
“The real question is if we are going to war, then we are in a different world. I don’t think we are going to a classic war. I think there will be a restructuring of world order in terms of changes in the supply chain. There will be changes in who is making technology. Ray Dalio sees the evolution of China and the US, diversification as good.
So do you want to be earlier of do you want to be late? It is better to be early because, china’s performance will keep rising,” he added.
Ray Dalio also that Europe and the US are very risky, in the latter, there is a widening wealth gap and conflict between socialism and capitalism, the fragmented decision making and the absence of the effectiveness of the monetary policy.
“Emerging markets have their distinct risks. China is no less risk than other markets.
“Not investing in China is very risky” said Ray Dalio.
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