Ray Dalio on What Investors MUST Know About China (NEW)

radelio has been very vocal in recent months about how investors should be thinking about china as a potential opportunity and potential risk i did a video previously analyzing his recent linkedin article which was aimed at the recent moves from the ccp and how these should be interpreted and how actually they've been misinterpreted by some investors and more specifically the media so go ahead and watch that video for more context on how ray dalio thinks about china and the risks involved but more recently he's done an interview with bloomberg in which china again was the topic of conversation and he rallied home some important truths about how to invest in china which i feel can be applied to not just china but almost all emerging markets and even some developing regions of established markets if we take out the political aspects so whether you're invested in china or not or maybe even deciding whether the current oppressed prices may warrant a consideration this will likely be beneficial to you now we're going to listen uh briefly to what ray dalio had to say about china and about investing in the current climate and then evaluate how this can be applied to our own investing strategy and for reference i'm going to be breaking this down into two parts so the first is china's internal growth and prosperity strategy and how we should be interpreting this and then secondly how to invest in china based off ray dalio's advice to us someone who's very well versed in the area in the matter and has developed good track record of investing in china so let's jump straight into what he had to say about china let's go to china now it's so much in the news i wanted to wait but i think we've just got to get to china right now this is a new beijing is it a return to an old beijing that you and i knew when you were buying northeast air or is you do you envision a beijing that's moving to a new territory well you have a daughter and son-in-law in shanghai and you and and so we get we're living in real time we're living in real time and the more you have contact i think the more you understand it i don't think it's well understood for a long time the the question is how can communism and capitalism coexist that's the riddle you have to answer and he had to answer a while ago and what do these people want at the top and what they um the answer to that riddle was told also by deng xiaoping when he was asked he said it's glorious to be rich and then they asked about capitalism and he says it doesn't matter if it's a black cat or a white cat just as long as it catches mice and so the idea is producing wealth and so but capitalism for capitalism yes but the redistribution okay so we have four things that are really going on in china if if you understand their intent um uh common prosperity is the word now okay and it has been the objective to raise money and then to to broaden the base of right okay that's common prosperity so if you look at their tax rates they're lower than the united states if you look at the measures of almost capitalism they have as much capitalism or more capitalism much more so than europe for example and then and now they're in a prospect to broaden that so i think there's a tendency and an understandable tendency to think because they are maoist and communist that they're going to uh go back to that kind of a thing the then they're not and xiaoping excuse me um shishi ping just um for example introduced the newest stock market in beijing he made a point of being the one who introduced the market in beijing to the small and medium-sized enterprises they know that it catches mice and so the issue is that the capitalist is not in control the issue is that there's a system for the whole system and then what they want to do is make sure that it's not a capitalist driven system so and then there's data control and then and then you have to understand there's micro management it's like the kids there's a there's a top down versus bottom up whether you like it or not it's what it is so in summary for this part i'd say ray dalio thinks china will continue to aim increasing its wealth in the ways which have worked for them over the past two decades understandably this new form of capitalism you know being controlled top down capitalism is alien to most western countries and people within it actually it's alien to anyone but china because no one's gone through this system before but one must appreciate that these ways of workings have managed to grow their economy by over 11 compounded annually over the trailing 20-year period where the global economy has grown at around two to three percent so it works and they also relinquish 700 million of their population out of poverty and raised gdp per capita from under a thousand dollars uh to over eight thousand dollars today and you can see though although the gdp per capita has risen significantly and purchasing power has gone up significantly it's nowhere near the amount of some of the developed economies today and still wouldn't be enough to buy a new iphone without using up 20 of your annual purchasing power meaning that although there's no guarantee china's economy will continue to prosper at the rate in which it has previously the bottom line is that the story seems far from finished and it definitely is far from finished and china's goal publicly disclosed goal of common prosperity is also far from their current reach so why would they throw the towel in now and change their ways of working to the detriment of wealth creation which is their absolute target moving on to how we should invest in china let's listen to ray dalio's short and sweet advice on how we should think about opening positions or being an investor in the chinese market well i think very simply you have to decide whether the rules and the place is a place that you're comfortable with they will set the rules and um you go in there and you decide if you're going to be part of that as a as a good citizen or you're not and then but you don't jump in and out you're in other words china is a strategic play you're not going to jump in and out so and and the amount that you're in should be that which you're comfortable with it's not smart to sell on the break or buy it it's it's a strategic play most investors are very overweight in the united states or other places diversification there's a competition a big competition a war of sorts going on between in technology and so on that diversification put the amount that and the exposure that you want to have there because you have to have places on some money on two chips because there are risks in the united states too if president xi said read principles what what chapter would you want him to read what does he need to know about dalio principles whether you like it or not um uh we are a bottom-up individualist it's built about individualism it's built and bring immigrants to the united states and and and that the power of the individual in china it is um the top down and it is an extended family one of the leaders said to me for example it's like you know a strict parent and that and so when we deal with things like um video games do you want your kids to watch video games in the united states we would say that's a parental decision generally speaking it wouldn't be the state to make that they would say it's terrible what's going on and the state is going to mandate it so that there are two those two approaches and i would say that the understanding the relative merits and understanding really how we can get along i wish that uh yes chinese understood americans better and americans understood that i want to bring it back now as a summary on this part i think ray dalio being you know macro and a venture of an investor is telling us that china has to be a long-term strategic play and and that long-term play is centered around being part of of the soon-to-be largest economy in the world it has the potential to pay off very kindly in the long term because of these economic trends but on the flip side it also provides significant short-term investment risk which is why he said you can't jump in and out you need to always invest with a bigger picture in mind just look at my alibaba position as a prime example it's down 30 from from what most people thought was a ridiculously low price at the time um but for me this is something that you know should be applied to all markets today not just china with current prices being where they are and interest rates being where they are as well inevitably having to come up sooner rather than later i'd say having a short-term or even medium-term outlook on stocks maybe one to two years is riskier than it's ever been before or at least you know riskier than it's been in recent years and prices could drop significantly from where they are today and not much argument be made about it being unjustified on the flip side to that we've seen good businesses in in recent years you know trade sideways for three even four years sometimes just because the price um three four years ago was so high that even with the moves up in their fundamentals it didn't quite justify an increase in the price so if you've got a short-term horizon you need to be aware of that more than anyone else so for china that ship has probably sailed prices are already depressed but there's there's nothing to say prices won't go lower than where they are today in a market where stock prices move on the latest news and there's fear and uncertainty flooding the market the short-term investor is playing with the odds heavily against them and in the long term you know regardless of current sentiment stocks tend to follow the underlying fundamentals of businesses so the bottom line here for me being that make sure when you invest you have a clear strategy and thesis in mind and that both are aimed at the long term and if you do both of those things you will be making your job a whole lot easier and probably be increasing your chances of making a fair return and so they're the two key talking points for me from this interview and what i've taken away from it both from a perspective of understanding china's internal strategy and also thinking about how we should develop our strategy for investing in china i will just highlight we should be aware that ray dalio is coming from a perspective of someone who is bullish on china and he has skin in the game and owns a basket of chinese companies through his hedge fund bridgewater so take that as you wish you know just because sometimes these smart people and super investors have a strong opinion on something and a vocal about it it doesn't necessarily make them right or mean they're talking absolute facts so always do your own research and use this information as a piece of research and analysis if you like or even discard it as you wish it's completely up to you but i just wanted to give that disclaimer but that's going to be all for this video just quickly i'll leave a link down below to the patreon where you can check out all of the benefits to joining and supporting the channel you'll also get access to all the exclusive analysis i've done my portfolio of stocks and the investing discord community and then just lastly i'd appreciate if you could leave a like if you enjoyed the video and then subscribe to the channel if you are new around here leave a comment down below with all of your thoughts and if rodalia was right on the current china situation or not but apart from all of that thank you all for watching i look forward to seeing you in the next one cheers

Channel: Finding Alpha

Views: 24,394

Rating: 4.9068494 out of 5

Keywords: Stock Market, Investing, DCF, Intrinsic Value, Valuation, Alibaba, BABA, IRR, Discounted Cash Flow, Growth Stocks, Stock Analysis, ray dalio, ray dalio china, stock market, Alibaba Stock, Tencent Stock, China Stocks

Id: mGKoAjbOtuk

Length: 11min 46sec (706 seconds)

Published: Tue Sep 28 2021