Ray Dalio: China Investing: A Proven Path to Success in Bull & Bear Markets

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In his latest article titled ‘To Answer the Question of Why I Invest in China’, Ray Dalio explains why he invests in China:

  • Experience and Success: He has a long history of successful investing in China, and believes his approach can handle both good and bad markets
  • Love for China: He has a deep love for China and its people, and enjoys being involved in the country’s development
  • Understanding the World: He sees China as essential to understanding the global landscape
  • Diversification: He believes China provides diversification benefits that are difficult to find elsewhere
  • Manageable Problems: He believes China’s problems are solvable through economic restructuring and strong leadership
  • Good Investment Opportunities: He sees the current climate as a good buying opportunity due to undervalued assets

While Dalio acknowledges the risks involved in investing in China, he believes the potential rewards outweigh them. He views China as one of many important investment streams in his portfolio. Here’s an excerpt from the article:

I was asked why I invest in China.

I invest in China because…

…I have pretty much always been involved in the Chinese markets.  I got involved in the stock markets in China before the stock markets existed by helping in a small way those who created them, and I have invested in them beginning from when I was allowed to until now. 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 through smart portfolio diversification and overweighting those assets that are best for whatever the environment is like.  Because of the way I invest, 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.

…I have had a wonderful 40-year relationship with the Chinese people and the Chinese culture that has led me to love them.  For me, being involved with them and their markets go together and I wouldn’t want to be without either.  I don’t jump in when things are booming and jump out when things are tough because I am neither “a fair-weather friend” nor “a fair-weather investor.”

…I love and need to understand the world. To understand the world, I need to understand China, and to understand China, I need to be immersed in it the way I have been immersed in it.

…I can’t diversify as well as I’d like to without investing in China. For example, China and the US are the only dominant powers in the most important industries and how these two nations are with each other will shape the world.

…For me, China’s problems, which I described in my earlier piece, are manageable.  They are manageable a) by me if I do my job well because my style of investing isn’t biased to out- or under-perform in any particular environment (e.g, in a bull or bear market in stocks) and b) 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.  For example, I am seeing signs that Chinese economic leaders are preparing to do quantitative easing along with debt restructurings to engineer a “beautiful deleveraging.”  Like all countries throughout history, they can restructure the financial system economy to be productive.  They can also manage how to deal with political, geopolitical, nature, and technology forces well.

…Of course, I still worry about China’s problems, just as I worry about the problems of the United States (which are very different from China’s), Europe (which are very different from those in China and the US), and most other countries that I invest in.  My worrying about these problems helps me deal with them well.

…All markets must be judged by the pricing relative to the fundamentals, and at all times there are good investments to be found.

…I have invested throughout many cycles in many countries and learned the adage “the time to buy is when there is blood in the streets.” In other words, the time to buy is when everyone hates the market and it’s cheap (which is now the case in Chinese equities), especially when it looks increasingly likely that the economic leadership is about to do something like a “beautiful deleveraging.”

…At the same time I understand others when they say that investing there is not worth the risks—i.e., that it’s too controversial because China is considered an enemy, that it’s a communist dictatorship which we should be morally against, that such systems have a clear track-record of failing, that if there is a US-China war it would be disastrous especially if one is an American investor there, etc.  I think about such issues and other issues a lot when considering investing in most countries. One can’t find a country that there aren’t issues to consider.  For me, none of these issues have outweighed the previously mentioned reasons for investing in China.

For those reasons, to me the key question isn’t whether or not I should invest in China so much as how much I should invest. As you know my holy grail of investing is to have 15 or more good uncorrelated return streams. I see China as one of these, so that will be a core position that I will vary from based on my assessments of all of the things I mentioned.

Those are just my reasons for what I do, not what I am saying is right for others.

You can find the original article here:

Ray Dalio – To Answer the Question of Why I Invest in China