The head of Bridgewater Associates, a global macro hedge fund that has $169 billion in assets under management, spoke with Fareed Zakaria of CNN about his view on future profits that can be made if one chooses to invest in the Chinese economy.
“I am impressed with the leadership of the country,” said Dalio. “There’s a lot of potential. Capital has not flowed to all parts of the economy.”
He predicted that China’s growth rate would be faster than that of the United States, which recently reported a GDP number of 0.2% between January and March of this year. Dalio noted that, unlike the United States, China has a strong plan for recovery that deals directly with its government’s debt.
“This is the 13th five year plan they set out and actually implemented. We don’t have plans,” he said, contrasting China to the U.S.
China’s 13th five-year development plan will be the basis of the economic policy of the country from 2016 to 2020. In its plan, China is expected to restructure the economy by promoting key emerging sectors, such as technology and biomedicine. The plan would also transition the world’s second-largest economy from an unsustainable 10% growth rate at its peak to more sustainable growth at about 6% which would ultimately be China’s “new normal” according to government leaders. China’s President, Xi Jinping, predicted this slowing to occur as an attempt at normalization.
Yet, China’s growth statistic is still questionable, since many claim that its reported statistics are likely overstated. A Citibank report concludes that quarterly growth could be below 6% year to year, rather than the recorded 7%. Other research firms, such as Lombard Street Research and Capital Economics, have an even grimmer outlook, pegging the quarter to about 4%.
“I have to laugh at the official estimates of 7% first-quarter GDP growth. I think that’s completely out of line,” said Harry X. Wu, a professor at Japan’s Hitotsubashi University and special adviser to the Conference Board.
What is not up for contention is the country’s shift from an economy that is driven by industrial production to one that is more consumer-based, a substantial transition that is usually not smooth.
However, other investment officers still agree with Dalio that China is on the right track.
“Keep an eye on the bigger picture. Don’t get thrown by short-term moves,” said Atul Lee, Chief Investment Officer with Deltec International Group.
Goldman Sachs reinforced this sentiment by stating that institutional investors are underweight in the country, a strategy that dragged down the portfolios of many mutual funds that underestimated the potential for China’s economy to bounce back. This mistake may have caused the returns of emerging mutual funds to slide, with only 20% of these funds outperforming their benchmarks, compared to the 60-70% on average over the past five years.
China now represents about half of the gain in both the MSCI Asia ex-Japan and the MSCI Emerging Markets indices, where it is the largest market with around one-fourth weight in both.