(AsianFin)—"Investing in China has been a success for me in all the ways that I hoped to be successful, including demonstrating to investors how they can do well in both bear and bull markets," Ray Dalio, the head of the world's largest hedge fund said in his LinkedIn blog on Tuesday.
"There is no such thing as a bad market; there is only bad decision making. I find the markets in China good for my type of decision making," he added.
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.
"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 comments came at a time when policymakers in Beijing doubled down on rejuvenating the world's second-largest economy, which has been hindered by challenges such as a decline in the property market, issues with local government debt, and the risks of deflation.
In recent months, China’s central bank has cut key interest rates and lowered reserve ratio requirements, and there is widespread anticipation that it would resume purchasing treasury bonds to infuse more liquidity into the economy.
Chinese stocks are aiming to recover approximately US$10 trillion in losses from the past three years, with valuations currently near a decade low. The MSCI China Index, tracking over 700 companies traded domestically and internationally, has rebounded by 12 percent since hitting a low in January, ranking among the top performers among major global peers during this period, according to Bloomberg data.
Foreign investors' interest in Chinese stocks continues to rebound as optimism grows about the prospects of recovery. Offshore funds bought 22 billion yuan (US$3 billion) of yuan-denominated stocks in March, according to Stock Connect data, following 60.7 billion yuan of net purchases in February, marking the end of a six-month outflow from the onshore market.
However, Dalio cautioned in another blog post last week that China's problems, including the need to restructure mounting debts, could still pose concerns, potentially leading to a "lost decade" similar to Japan's experience. He highlighted the challenge of balancing deflationary deleveraging to reduce debts with easier monetary policy to support growth, which he deemed "difficult and politically dangerous" to achieve.
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. This could continue to pose challenges for China in attracting investment, according to Dalio.
Bridgewater Associates, with over US$124 billion in assets under its management, has been reducing its exposure to Chinese shares in recent months. The hedge fund sold all of its stakes in companies such as low-cost retailer Miniso and wealth manager Noah Holdings in the final quarter of 2023. Additionally, it trimmed its positions in Chinese equities, including PDD Holdings, Trip.com, and Yum China, by 10% to 20%.
Earlier, the hedge fund reduced the holding of ten stocks, including EV makers Xpeng and Li Auto, and biopharmaceutical players HutchMed and BeiGene.
However, Dalio emphasized that despite China's challenges, its investment appeal remains strong. He noted that the ultimate goal of investing is to have good uncorrelated return streams, and China will continue to be 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.
