Foreign investors’ appetite for Chinese stocks continues to recover as they become less pessimistic about the prospects for a recovery.
Ray Dalio, founder of Bridgewater Associates, the world’s largest investment fund, said this Tuesday that now is the right time to invest in Chinese stocks, when Beijing is working to support the economy.
“The time to buy is when everyone hates the market and it is cheap, which is now the case for Chinese stocks,” especially as there are signs that the country’s economic leaders are preparing stimulus measures such as quantitative easing and debt restructuring to relaunch the economy, wrote Dalio on his LinkedIn page.
“China’s problems (…) can be managed by Chinese leaders if they do their job well, being both intelligent and courageous. I think that those who guide policy in China will end up dealing well with the problems,” he added. Dalio’s remarks come as Beijing policymakers have stepped up efforts to revive the world’s second-largest economy, which has been hit by a housing market crisis, local government debt problems and risks of deflation.
The central bank has lowered interest rates and capital reserve ratio requirements for banks in recent months and is now expected to resume purchasing treasury bonds to inject more liquidity into the economy.
Chinese stocks are trying to recover from a combined $10 trillion drop in value over the past three years, with valuations hovering near a decade low. The MSCI China index, which tracks more than 700 companies in the country, recovered 12% from its January low, placing it among the best performers of the world’s main peers during that period, according to data from the Bloomberg agency.
Foreign investors’ appetite for Chinese stocks continues to recover as they become less pessimistic about the prospects for a recovery. Offshore funds purchased 22 billion yuan (almost 2.8 billion euros) of yuan-denominated shares in March, according to data from Stock Connect.
Dalio acknowledged, however, that China’s problems may continue to be a cause for concern, as its leaders need to restructure mounting debts or risk a “lost decade” as happened in Japan in the 1990s.
Beijing needs deflationary deleveraging to reduce debt and an easier monetary policy to support growth, which would be “difficult and politically dangerous” to conceive, he said.
Geopolitical conflicts will also continue to drive global investors to diversify or abandon China. This means the country will continue to face difficulties in attracting investment, Dalio said.
Bridgewater Associates, which manages more than $124 billion in assets, has been dumping Chinese stocks from its portfolio in recent months. The absolute return fund sold all its holdings in low-cost retailer Miniso and wealth manager Noah Holdings in the last quarter of 2023, and reduced its positions in Chinese stocks including PDD Holdings, Trip.com and Yum China.
The fund also joined a global exodus by abandoning 10 stocks, including electric vehicle makers Xpeng and Li Auto and biopharmaceutical companies HutchMed and BeiGene.
But none of China’s problems outweighed its attractiveness in terms of investment, Dalio said.
“For me, the main question is not whether or not I should invest in China, but how much I should invest,” he said.
