Billionaire Ray Dalio says ‘almost everybody is underweight on China’ and gives advice on how to invest in the world’s 2nd largest economy

Ray Dalio
  • Billionaire investor Ray Dalio said “everybody is underweight on China”  but he thinks the “right type of balance” investing in China can yield positive results. 
  • “Our approach is, we call it the all-weather approach, it’s a certain balance in which you achieve balance without lowering the expected return. From that, you want to make the tactical moves,” he said.
  • Dalio thinks the Chinese yuan will gain international usage outside of China in the face of a weaker US dollar. 
  • He thinks Indian markets also provide potential, though there is “less liquidity” there. 
  • Visit Business Insider’s homepage for more stories.

Billionaire investor Ray Dalio told CNBC’s “Street Signs Asia” Wednesday “everybody is underweight on China,” but believes investing in the country with the “right type of balance” can yield positive outcomes. 

“I think almost everybody is underweight on China if you look at any of the benchmarks relative to world capitalization,”Dalio, the co-founder of hedge fund Bridgewater Associates, said.  

“The first move is to get exposure to China in a diversified portfolio. That means to achieve the right kind of balance of assets in China,” he said. “Our approach is, we call it the all-weather approach, it’s a certain balance in which you achieve balance without lowering the expected return. From that, you want to make the tactical moves.”

Dalio said China’s yuan currency may be more actively used outside China at a time when the US dollar, the world’s reserve currency and other major currencies have taken a beating as economic growth has struggled. 

“You’ll see more of the internalization of the [yuan], and it’s a natural consequence, because as the dollar and the major reserve currencies are having the challenges that we are talking about, some element of void will be there,” he said. 

The US dollar index which tracks the strength of the greenback relative to a basket of currencies, has lost around 7% in the last six months. In the same time, the Chinese central bank has allowed the yuan to rise by around 4% against the US dollar. The current exchange rate is roughly 1 dollar per 6.8 yuan. 

Read more: These 30 global stocks are positioned to stay on top in the 4th quarter as the contrast between a recovering economy and rising COVID cases keeps markets volatile, RBC says

Dalio acknowledged tactical investments will shift over time.

“And of course those change, depending on the relative pricing of assets, classes and so on. But first … get the exposure, I believe, to those markets and the currency too,” he said. 

Major Chinese indices have risen in recent months underpinned by a recovery from the COVID-19 pandemic and low cases of the virus. China’s Shanghai Composite is up 6% since the start of the year. By way of comparison, the S&P 500 which hit an all-time high in September has risen 4% since the start of 2020. 

Dalio sees investing opportunities outside of China in the region, but thinks many countries such as India are lagging behind. 

Read more: JPMorgan’s $1.9 trillion asset management firm shares the 5 biggest opportunities it’s recommending for clients across markets during the fourth quarter

“There’s much less liquidity in those markets, (they’re) much less developed,” he said.

While India boasts many “cutting edge technologies,” he said they are tougher to invest in. 

“If there was a much greater development of the capital markets, more liquidity, more opening up of those markets, that would revitalize entrepreneurship,” Dalio said. “Being able to raise money in that way and circulate money in a more efficient way would revitalize the Indian economy.”

At almost 7 million infections, India is the second-worst hit country by the pandemic, behind the US. India has suffered more than 104,000 COVID-19 deaths.

India’s GDP shrank by 23.9% in the April-June 2020 period.