Ray Dalio explains why he's still all-in on China, even amid trade war

Ray Dalio, the founder and cochief investment officer of Bridgewater Associates — the world's largest hedge fund — reveals his case for an investment in China, despite its strained relationship with the US.

He cites China's ability to deal with slowdowns through coordinated monetary and fiscal policies, and also points to the explosive growth in their public and private markets.

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The US's relationship with China isn't exactly all rainbows and sunshine. In fact, it's the exact opposite.

In what seems like a never-ending trade war, the world's two-largest economies have continuously attacked one another with tit-for-tat provocations, leading to escalating tensions and roiled financial markets.

And although there are many investors who wouldn't touch a Chinese investment with a ten-foot pole in today's environment, one prominent hedge-fund billionaire thinks investors are missing a huge opportunity.

That would be Ray Dalio, the founder and cochief investment officer of Bridgewater Associates — the world's largest hedge fund. And he's all-in on China.

“Look at the growth in the markets — over the last 10-years, the stock markets in China has increased by market capitalization by a factor of 4,” Dalio stated in a recent Bridgewater Associates video cast. “The bond markets — combining both the government and the corporate bond markets — have increased by a factor of 7. And they're each the second largest markets in the world.”

The graph below provides a visualization of the explosive growth in Chinese assets, and the ballooning amount of foreign investment piling into the country.

According to Dalio, this rapid pace of growth — combined with coordinated monetary and fiscal policies — sets the stage for very prosperous future in China. He says investors wary of dipping their toes into the Chinese market should instead be fearful of missing out on such a big opportunity.

“The Chinese have more ability to deal with monetary and fiscal policy relative to the US,” he stated. “They have a lot more room to be managing those things — and they are managing those things.”

In short, China can fine-tune economic stimulus packages in a coordinated effort. In doing so, they're able to step in at the first signs of weakness, with limited red-tape to navigate, which makes for fast and effective problem-solving. As a result, growth is prolonged and economic output remains high.

For context, China's Q2 GDP grew at 6.2% — almost three times as fast as the US.

“Going where the growth is, and also having the diversification is a smart thing to do,” he said.

Dalio's timing couldn't be more controversial. On Monday, US equities plummeted the most in 2019 after China's central bank allowed the yuan to fall below a crucial threshold. That stoked fears of another harrowing chapter of the US-China trade war.

But Dalio isn't phased.

“People say 'Why are you so bullish on China？' And I know it's very controversial — particularly at this time — to be very bullish on China,” he stated. “I really admire what is being done, and I want to be a part of it — and I think our investors should be a part of it.”

To further his point, Dalio points to China's explosive growth in technology, saying that “they're running fast to be number-one in those industries.”

The categories you see above will continue to transform the future of the world. Investors should be clamoring for positions within these industries.

For these reasons, Dalio thinks China will continue to reward those who are willing to put their hard-earned capital to work within its borders.

“Not investing in China is very risky,” he concluded.

For investors looking for broad Chinese exposure, there are two large, highly liquid exchange-traded fund that fit the bill:

iShares MSCI China ETF (MCHI) — $3.7 billion market cap, up 3.0% year-to-date

iShares China Large-Cap ETF (FXI) — $4.6 billion market cap, down 1.1% YTD