Ray Dalio bullish on China (China market cap to overtake US in 2030?)

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guyinlaw
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Ray Dalio bullish on China (China market cap to overtake US in 2030?)

Post by guyinlaw » Mon Aug 12, 2019 5:00 pm

[Thread merged into here, see below. --admin LadyGeek]

Dalio has been very vocal about investing in China. He has said “Not investing in China is ‘very risky’”. The videos and some of the information is on their website.

https://www.bridgewater.com/china/

Their chart below expects China's total stock market capitalization overtaking that of US in 2030.

Image

Would you consider investing in China outside of Total World Stock Market?
What is this “Chinese Balanced Portfolio”?
Only Stocks, or Bonds as well ?

Image

I have invested a small amount in CXSE ETF (WisdomTree China ex-State-Owned Enterprises Fund), was planning to increase it to 5%, maybe a bit higher. I have avoided investing in the past due to politics and their government.

Some of the previous posts discussed dangers of China.
viewtopic.php?t=281812

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Re: Ray Dalio bullish on China (China market cap to overtake US in 2030?)

Post by whodidntante » Mon Aug 12, 2019 5:44 pm

Not specifically or only China, but I think this century might be economically dominated by Asia. So, of course, I want exposure to Asia. I just wish their capital markets were more amenable to me making off with giant bags of money for risking my money there. We will see what happens.

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Re: Ray Dalio bullish on China (China market cap to overtake US in 2030?)

Post by Northern Flicker » Mon Aug 12, 2019 5:46 pm

That graph shows Chinese equities sharply outperforming US equities since about 2012. I’ve tried to replicate that on Morningstar, but could not. For instance:

http://quotes.morningstar.com/chart/fun ... 2%3A955%7D

What is the basis for suggesting that Chinese equities have outperformed US equities since around 2012?

But the graph is labeled with GDP, not equity returns. Chinese GDP has also not exceeded US GDP (yet).

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Re: Ray Dalio bullish on China (China market cap to overtake US in 2030?)

Post by permport » Mon Aug 12, 2019 5:47 pm

No, this will never happen because international will always perform poorly compared with U.S.

...

...

...

:wink:
Buy right and hold tight.

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Re: Ray Dalio bullish on China (China market cap to overtake US in 2030?)

Post by WhiteMaxima » Mon Aug 12, 2019 5:50 pm

Conflict of interest.

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Re: Ray Dalio bullish on China (China market cap to overtake US in 2030?)

Post by Stick5vw » Mon Aug 12, 2019 6:34 pm

I believe that BW has launched an All Weather strategy focused on the China market.

https://www.pionline.com/article/201709 ... y-strategy

While I think there is indeed a strong case to be made that China is a great long term investment opportunity, the cynic inside me also says that these recent publications are marketing hype for their new product.

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Re: Ray Dalio bullish on China (China market cap to overtake US in 2030?)

Post by guyinlaw » Mon Aug 12, 2019 8:58 pm

Northern Flicker wrote:
Mon Aug 12, 2019 5:46 pm
But the graph is labeled with GDP, not equity returns. Chinese GDP has also not exceeded US GDP (yet).
The GDP is Purchase Power Parity adjusted. See https://en.wikipedia.org/wiki/List_of_c ... _GDP_(PPP)
China did overtake US in GDP (PPP)

Stock market capitalization is the third small chart. cropped and posted below.

Image

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Re: Ray Dalio bullish on China (China market cap to overtake US in 2030?)

Post by guyinlaw » Mon Aug 12, 2019 9:08 pm

WhiteMaxima wrote:
Mon Aug 12, 2019 5:50 pm
Conflict of interest.
Stick5vw wrote:
Mon Aug 12, 2019 6:34 pm
the cynic inside me also says that these recent publications are marketing hype for their new product.
Bridgewater has $125B assets under management. They are the largest hedge fund, close to twice their nearest competitor. Some of their funds are closed and don't think they will have any difficulty getting new investors.
https://www.investopedia.com/investing/ ... nds-world/

Ray Dalio net worth is $20B, 70 years old. With his principles book, blogs on LinkedIN and recent public appearance he is working to build a wider legacy. This might be his big call for the next 50 years.

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Re: Ray Dalio bullish on China (China market cap to overtake US in 2030?)

Post by AlohaJoe » Mon Aug 12, 2019 9:20 pm

WhiteMaxima wrote:
Mon Aug 12, 2019 5:50 pm
Conflict of interest.
What's the conflict of interest?

Did you go around posting "conflict of interest" every time John Bogle talked about investing in index funds?

Isn't it better to just discuss something on its merits?

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Re: Ray Dalio bullish on China (China market cap to overtake US in 2030?)

Post by unclescrooge » Mon Aug 12, 2019 9:48 pm

guyinlaw wrote:
Mon Aug 12, 2019 5:00 pm
Dalio has been very vocal about investing in China. He has said “Not investing in China is ‘very risky’”. The videos and some of the information is on their website.

https://www.bridgewater.com/china/

Their chart below expects China's total stock market capitalization overtaking that of US in 2030.

Image

Would you consider investing in China outside of Total World Stock Market?
What is this “Chinese Balanced Portfolio”?
Only Stocks, or Bonds as well ?

Image

I have invested a small amount in CXSE ETF (WisdomTree China ex-State-Owned Enterprises Fund), was planning to increase it to 5%, maybe a bit higher. I have avoided investing in the past due to politics and their government.

Some of the previous posts discussed dangers of China.
viewtopic.php?t=281812
While I can't speak to the validity of Dalio's beliefs, all the Doom and Gloom around China made me by CXSE a while back (maybe 2 years?). It's been a volatile ride but it's been a great investment. I recently trimmed my holding from 5% to 3% at $75. Used the proceeds to increase my gold holdings and overall EM holdings.

Ignoring the largest economy (or second largest) in the world is just foolish.

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Re: Ray Dalio bullish on China (China market cap to overtake US in 2030?)

Post by atdharris » Mon Aug 12, 2019 9:59 pm

How are people gaining exposure to China? Through EM funds or buying a Chinese specific ETF? I tilt towards EM through VWO currently.

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Re: Ray Dalio bullish on China (China market cap to overtake US in 2030?)

Post by columbia » Tue Aug 13, 2019 6:00 am

atdharris wrote:
Mon Aug 12, 2019 9:59 pm
How are people gaining exposure to China? Through EM funds or buying a Chinese specific ETF? I tilt towards EM through VWO currently.
FLCH is a relatively cheap option for those wanting a dedicated China fund:
https://finance.yahoo.com/quote/FLCH

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Re: Ray Dalio bullish on China (China market cap to overtake US in 2030?)

Post by petulant » Tue Aug 13, 2019 6:44 am

The problems with overweighting China have been discussed many times before. Legal/political issues, currency issues, and demographic issues abound.

But there is a key fallacy behind the idea that Chinese market cap in the future overtaking US market cap makes it a good investment opportunity now. This market cap idea would make a good argument for investing now if the growth in market cap all came from rising share prices that occurs due to earnings growth and innovation. There is no reason to think that will occur in the case of China. Instead, it can come from two other sources.

One is volatility and swings in valuations. This has happened in China's mainland where stocks were in a bubble a few years ago and have swung around wildly. The Chinese public are not mature capitalists and have been through 1920s-style speculation. This is only a good thing if you put a lot of your portfolio in Chinese stocks and use that to rebalance aggressively.

The second is that market cap can grow through new public offerings. Right now Chinese companies can do offerings on Western exchanges to raise capital; state-owned companies can try to open up their capital structures; etc. As the Chinese markets expand and mature, more companies will go public. This is likely a large source of growth in market cap, and the key is that it doesn't make sense to invest in Chinese equities to take advantage of the opportunity until after the offerings occur. You also get access to these offerings through large index funds like an Emerging Markets fund.

So the market cap rising as a reason to invest there is fallacious.

Another fallacy--on the chart above, it shows Chinese equities offering more diversification benefits than a diversified emerging markets fund.

This is true of any individual country. When you aggregate multiple countries, the overall fund begins to have a higher correlation to U.S. equities because country-specific issues are diversified away.

For example, VTMGX is the Admiral shares mutual fund for Vanguard developed markets ex-U.S.. It has a correlation with U.S. of .87 since January 2000 (around when it launched), according to PortfolioVisualizer. EWJ, the iShares ETF for Japan has a correlation of .66 over the same period. EWA, the Australia ETF, has .75. Germany's is at .83 and Canada's is at .81.

VEIEX is an Investor shares mutual fund for Vanguard emerging markets. It has a correlation with U.S. of .80 since January 2001 (near the launch of the Brazil ETF). EWZ, the iShares ETF for Brazil, has a correlation of .60 with U.S. equities. EWM, the Malaysia ETF, has a correlation of .53.

So it's no surprise a China fund would have a lower correlation with U.S. equities than the emerging markets index. That's true of basically any country compared to its developed/emerging index. Yet I don't see this argument coming up for Australia or Canada, both great equity markets that have performed very well. Fallacy.

(This is not to mention that share of GDP is definitely not a reason to overweight a country's equities...if the USSR had allowed a few companies to go public in 1988, would it mean you should overweight USSR? No! A lot of its GDP was in state-owned hands. But that's exactly the situation with PRC and many other countries. Fallacy.)

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Re: Ray Dalio bullish on China (China market cap to overtake US in 2030?)

Post by unclescrooge » Tue Aug 13, 2019 8:15 am

petulant wrote:
Tue Aug 13, 2019 6:44 am
The problems with overweighting China have been discussed many times before. Legal/political issues, currency issues, and demographic issues abound.

But there is a key fallacy behind the idea that Chinese market cap in the future overtaking US market cap makes it a good investment opportunity now. This market cap idea would make a good argument for investing now if the growth in market cap all came from rising share prices that occurs due to earnings growth and innovation. There is no reason to think that will occur in the case of China. Instead, it can come from two other sources.

One is volatility and swings in valuations. This has happened in China's mainland where stocks were in a bubble a few years ago and have swung around wildly. The Chinese public are not mature capitalists and have been through 1920s-style speculation. This is only a good thing if you put a lot of your portfolio in Chinese stocks and use that to rebalance aggressively.

The second is that market cap can grow through new public offerings. Right now Chinese companies can do offerings on Western exchanges to raise capital; state-owned companies can try to open up their capital structures; etc. As the Chinese markets expand and mature, more companies will go public. This is likely a large source of growth in market cap, and the key is that it doesn't make sense to invest in Chinese equities to take advantage of the opportunity until after the offerings occur. You also get access to these offerings through large index funds like an Emerging Markets fund.

So the market cap rising as a reason to invest there is fallacious.

Another fallacy--on the chart above, it shows Chinese equities offering more diversification benefits than a diversified emerging markets fund.

This is true of any individual country. When you aggregate multiple countries, the overall fund begins to have a higher correlation to U.S. equities because country-specific issues are diversified away.

For example, VTMGX is the Admiral shares mutual fund for Vanguard developed markets ex-U.S.. It has a correlation with U.S. of .87 since January 2000 (around when it launched), according to PortfolioVisualizer. EWJ, the iShares ETF for Japan has a correlation of .66 over the same period. EWA, the Australia ETF, has .75. Germany's is at .83 and Canada's is at .81.

VEIEX is an Investor shares mutual fund for Vanguard emerging markets. It has a correlation with U.S. of .80 since January 2001 (near the launch of the Brazil ETF). EWZ, the iShares ETF for Brazil, has a correlation of .60 with U.S. equities. EWM, the Malaysia ETF, has a correlation of .53.

So it's no surprise a China fund would have a lower correlation with U.S. equities than the emerging markets index. That's true of basically any country compared to its developed/emerging index. Yet I don't see this argument coming up for Australia or Canada, both great equity markets that have performed very well. Fallacy.

(This is not to mention that share of GDP is definitely not a reason to overweight a country's equities...if the USSR had allowed a few companies to go public in 1988, would it mean you should overweight USSR? No! A lot of its GDP was in state-owned hands. But that's exactly the situation with PRC and many other countries. Fallacy.)
Excellent points.

My china fund (and also the OP's) is CXSE, which excludes state-owned enterprises. While not a complete investment by itself, buying when historically cheap as part of a well diversified portfolio and, as you mentioned, aggressively rebalancing, can lead to positive outcomes.

Using Russia as an example, despite being on the brink of war (or was it at war?) with Crimea in 2015, Russia Index fund (RSX) still returned 50% in 2016.

I had a buddy would held Russia for 3 years before bailing in early 2016. His thesis was that it was relatively cheap, but he didn't have the stomach to hold it long enough to benefit.

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Re: Ray Dalio bullish on China (China market cap to overtake US in 2030?)

Post by Tyler Aspect » Tue Aug 13, 2019 1:17 pm

We don't need to worry too much about this issue. If China does well economically it will eventually be incorporated in the developed market index funds. No way to tell when that event should occur.
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Re: Ray Dalio bullish on China (China market cap to overtake US in 2030?)

Post by WhiteMaxima » Tue Aug 13, 2019 1:48 pm

AlohaJoe wrote:
Mon Aug 12, 2019 9:20 pm
WhiteMaxima wrote:
Mon Aug 12, 2019 5:50 pm
Conflict of interest.
What's the conflict of interest?

Did you go around posting "conflict of interest" every time John Bogle talked about investing in index funds?

Isn't it better to just discuss something on its merits?
By opening Chinese equity. BW will take more investment and make him rich. Chinese market is very unregulated. Investors have huge risk. I believe BW will earn a lot fees by investing into China.

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Re: Ray Dalio bullish on China (China market cap to overtake US in 2030?)

Post by whodidntante » Tue Aug 13, 2019 1:52 pm

Tyler Aspect wrote:
Tue Aug 13, 2019 1:17 pm
We don't need to worry too much about this issue. If China does well economically it will eventually be incorporated in the developed market index funds. No way to tell when that event should occur.
China already has the fourth largest equity market and is bigger than several DMs. How much bigger does it have to get? Emerging does not mean small.

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Re: Ray Dalio bullish on China (China market cap to overtake US in 2030?)

Post by nedsaid » Tue Aug 13, 2019 2:19 pm

unclescrooge wrote:
Mon Aug 12, 2019 9:48 pm

While I can't speak to the validity of Dalio's beliefs, all the Doom and Gloom around China made me by CXSE a while back (maybe 2 years?). It's been a volatile ride but it's been a great investment. I recently trimmed my holding from 5% to 3% at $75. Used the proceeds to increase my gold holdings and overall EM holdings.

Ignoring the largest economy (or second largest) in the world is just foolish.
I am not a China bull, I don't recommend overweighting Chinese shares but the approach above seems reasonable. A 5% bet isn't going to ruin a portfolio. Have posted on China many times before, I see it as 1989 Japan on steroids. Don't preach gloom and doom over China, it will be and continue to be one of the world's leading countries. It will grow and become wealthier but it isn't taking over the world any time soon.
A fool and his money are good for business.

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Re: Ray Dalio bullish on China (China market cap to overtake US in 2030?)

Post by guyinlaw » Tue Aug 13, 2019 2:54 pm

Total World Stock Index Fund VTWAX/ VT - Invests 54% in US, 21% in Europe and 3% in China.
  • Most experts believe that US Stocks will return under 5% over the next decade. (see below)
  • Vanguard expects non-US equities to perform 1 to 5% better than US stocks over the next decade.
  • Bridgewater's Alpha fund has a history of returning 10+% returns annually. It expects those returns in China, so they are selling the product.
  • China has many risks, with questionable politics. But they know that capitalism a way to prosperity and they play the really long game. The charts above show how they are doing as compared to US. Should I stick with only 3% percent allocation to China?
Returns expected over the next decade
John C. Bogle wrote: US stocks = 4-5%
Vanguard wrote: US stocks = 3-5%
ex-US stocks = 6-8%
https://www.morningstar.com/articles/90 ... -returns-2
Bridgewater wrote: .. it will be hard for companies to maintain the current level of profitability over the coming decade, let alone increase the margins further...
https://www.bridgewater.com/research-li ... rspective/

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Re: Ray Dalio bullish on China (China market cap to overtake US in 2030?)

Post by TheJoelfather » Tue Aug 13, 2019 2:57 pm

petulant wrote:
Tue Aug 13, 2019 6:44 am
But there is a key fallacy behind the idea that Chinese market cap in the future overtaking US market cap makes it a good investment opportunity now. This market cap idea would make a good argument for investing now if the growth in market cap all came from rising share prices that occurs due to earnings growth and innovation. There is no reason to think that will occur in the case of China.

...
China earnings per share growth was double that of the US in the last decade. The data is provided in the accompanying Daily Observations brief.
petulant wrote:
Tue Aug 13, 2019 6:44 am
Another fallacy--on the chart above, it shows Chinese equities offering more diversification benefits than a diversified emerging markets fund.

...
That's not what the chart states. The axis pertaining to diversification is titled: Correlation to US Traditional Portfolio

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Re: Ray Dalio bullish on China (China market cap to overtake US in 2030?)

Post by Broken Man 1999 » Tue Aug 13, 2019 3:03 pm

Very possible.

However, seems once upon a time Japan, Inc. was going to grow and grow and grow and buy everything.

How did that work out?

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Re: Ray Dalio bullish on China (China market cap to overtake US in 2030?)

Post by Xrayman69 » Tue Aug 13, 2019 3:11 pm

Maybe or maybe not that China will have a large performance difference???

I don’t know and even those who are “smart” do know the time frame in which their speculation will peak.

I’ll stick with a diverse predominantly S&P 500 index with low costs, broad international index (which includes China) and a portion with bonds.

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Re: Ray Dalio bullish on China (China market cap to overtake US in 2030?)

Post by bhsince87 » Tue Aug 13, 2019 3:24 pm

Just one data point from a random internet poster, but I will not intentionally invest in anything related to China.

I was involved in businesses in China for 20+ years, and there is simply no "rule of law".

I saw 99 year leases with the government broken twice. Once after just 3 years!

Rules and regulations enforced on some businesses and people, but totally ignored by businesses right next door.

Corruption, pollution, fake data, counterfeit products, no respect for intellectual property OR physical property, and government/political control and meddling in everything. It is not an investor friendly environment!
"If ye love wealth better than liberty, the tranquility of servitude better than the animating contest of freedom, go home from us in peace." Samuel Adams

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Re: Ray Dalio bullish on China (China market cap to overtake US in 2030?)

Post by Tyler Aspect » Tue Aug 13, 2019 3:57 pm

whodidntante wrote:
Tue Aug 13, 2019 1:52 pm
Tyler Aspect wrote:
Tue Aug 13, 2019 1:17 pm
We don't need to worry too much about this issue. If China does well economically it will eventually be incorporated in the developed market index funds. No way to tell when that event should occur.
China already has the fourth largest equity market and is bigger than several DMs. How much bigger does it have to get? Emerging does not mean small.
I think for China to transition off emerging market status it needs an independent judicial system, an open exchange rate regime among other things.
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Ray Dalio seems like China. Is he biased? Or correct?

Post by teelainen » Tue Aug 13, 2019 6:44 pm

He recently did a 30 minute long interview where he seems to like China, not just a little but A LOT.

Do you think he is biased because his company (Bridgewater Associates) is heavily overweight and invested in emerging markets?

Or do you think he is actually correct in thinking that the China stock market will outperform the USA in the next 20-30 years?

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Re: Ray Dalio bullish on China (China market cap to overtake US in 2030?)

Post by columbia » Tue Aug 13, 2019 6:53 pm

bhsince87 wrote:
Tue Aug 13, 2019 3:24 pm
Just one data point from a random internet poster, but I will not intentionally invest in anything related to China.

I was involved in businesses in China for 20+ years, and there is simply no "rule of law".

I saw 99 year leases with the government broken twice. Once after just 3 years!

Rules and regulations enforced on some businesses and people, but totally ignored by businesses right next door.

Corruption, pollution, fake data, counterfeit products, no respect for intellectual property OR physical property, and government/political control and meddling in everything. It is not an investor friendly environment!
A portion of my organization’s revenue is reliant on leasing a building in HK. The above - and recent events - worry me.

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Re: Ray Dalio seems like China. Is he biased? Or correct?

Post by randomguy » Tue Aug 13, 2019 7:49 pm

teelainen wrote:
Tue Aug 13, 2019 6:44 pm
He recently did a 30 minute long interview where he seems to like China, not just a little but A LOT.

Do you think he is biased because his company (Bridgewater Associates) is heavily overweight and invested in emerging markets?

Or do you think he is actually correct in thinking that the China stock market will outperform the USA in the next 20-30 years?
There are a lot of professionals who think that emerging markets will outperform the US over the next 10-30 years. Who the heck knows if they are right or not.

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Re: Ray Dalio seems like China. Is he biased? Or correct?

Post by yangtui » Tue Aug 13, 2019 8:41 pm

a lot of my mainland friends seem to be very excited about converting their rmb into foreign currency so they can buy education for their children overseas or foreign real estate or emigrating. if the locals are looking to move money (and themselves) out of china why would i want to move money into china?

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Re: Ray Dalio bullish on China (China market cap to overtake US in 2030?)

Post by unclescrooge » Tue Aug 13, 2019 8:44 pm

Broken Man 1999 wrote:
Tue Aug 13, 2019 3:03 pm
Very possible.

However, seems once upon a time Japan, Inc. was going to grow and grow and grow and buy everything.

How did that work out?

Broken Man 1999
Poorly, but then the PE ratio was something like 150 for Japanese stocks vs 17 for China ex-state owned enterprises.

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Re: Ray Dalio seems like China. Is he biased? Or correct?

Post by Iridium » Tue Aug 13, 2019 9:04 pm

teelainen wrote:
Tue Aug 13, 2019 6:44 pm
He recently did a 30 minute long interview where he seems to like China, not just a little but A LOT.

Do you think he is biased because his company (Bridgewater Associates) is heavily overweight and invested in emerging markets?

Or do you think he is actually correct in thinking that the China stock market will outperform the USA in the next 20-30 years?
If the question is whether he is telling people to invest in China solely to cause his investments to increase in value, that seems unlikely. A 'pump and dump' scam works on thinly traded securities, not on one of the larger markets in the world. I have no doubt that he honestly believes that China will outperform the US. Whether he is suffering from confirmation bias or the like is impossible to tell.

Is he correct? Well, never having heard of him, I will assume that he is an intelligent and hard working analyst. He could be right. On the other hand, other intelligent, hard working analysts believe that China will underperform. They too are willing to put their money where their mouth is and are underweight China. At current market prices, the experts who are overweight are in balance with the experts who are underweight (if this wasn't the case, the price would move until balance was restored).

Which side is right? Hard to say. They know orders of magnitude more than I about China and have come to opposite conclusions. In the absence of any other information, the best I can guess is that the overweighters are as likely to be right as wrong. At a superficial level, I will note that China has accomplished much that it has set out to do and growing their economy and domestic industry is something that the government has repeatedly noted is a priority. On the other hand, they are going to run into severe demographic issues at the same time they try to escape the middle income trap. Hard to say.

Ultimately, not knowing whether to be overweight or underweight, so choosing to be market weight is the essence of the Boglehead philosophy. I am sorry that you have not gotten a more thorough analysis on this thread. Partially it is because the forum is dedicated to the idea of not trying to outsmart the market. It is also partially because most (perhaps all) of us don't know who Ray is nor heard the interview, so it would be difficult for us to provide concrete areas of agreement or disagreement.

Ultimately, this may not be the best forum to have such a discussion anyway. A complete evaluation would include assumptions and probabilities related to future economic policies of both countries. However, such discussion is banned per forum rules.

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Re: Ray Dalio seems like China. Is he biased? Or correct?

Post by SimpleGift » Tue Aug 13, 2019 9:13 pm

teelainen wrote:
Tue Aug 13, 2019 6:44 pm
Or do you think he is actually correct in thinking that the China stock market will outperform the USA in the next 20-30 years?
Your question is really unanswerable, as no one knows the future returns of the Chinese and U.S. markets.

However, most emerging markets index funds these days already have at least a 30% allocation to Chinese stocks — which is slated to grow considerably in the years ahead (chart below).
  • Image
    Source: UBS, as of February 28, 2019.
Many investors overweight emerging markets in general, and this provides all the China exposure they desire.

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Re: Ray Dalio seems like China. Is he biased? Or correct?

Post by nisiprius » Tue Aug 13, 2019 9:16 pm

In 2008, Burton Malkiel seemed to like China. He co-authored a book, From Wall Street to the Great Wall: How Investors Can Profit from China's Booming Economy.

Image

The book says,
We hope we have convinced you that China is and will be the growth story of the 21st century. And we hope you agree that every portfolio, and yours in particular, should have some exposure to this economic powerhouse. We now get down to what we believe is the optimal strategy for you to profit from China's economic boom.
The book goes on to suggest, p. 293, exhibit 12.3, a fully detailed all-ETF portfolio:

Image

The ticker symbol DND appears to be wrong, or to have changed, to AXJL. Below, we compare this portfolio (blue) with the Vanguard Total World Stock Index Fund, VTWSX (red).

My judgement is that they have done "about the same, so far."

Source

Image
Last edited by nisiprius on Wed Aug 14, 2019 11:06 am, edited 3 times in total.
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Re: Ray Dalio seems like China. Is he biased? Or correct?

Post by KlangFool » Tue Aug 13, 2019 9:17 pm

OP,

If it is not safe to invest in China, why should we as an individual investor care about whether China stock market/economy is doing well? It won't matter to us. If the Chinese in China do not believe that it is safe to invest in China, why do you think it is safe for you as a foreigner to invest in China?

KlangFool

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Re: Ray Dalio bullish on China (China market cap to overtake US in 2030?)

Post by LadyGeek » Tue Aug 13, 2019 9:19 pm

I merged guyinlaw's thread into the on-going discussion. The combined thread is in the Investing - Theory, News & General forum (general discussion).

The software sorts by time, guyinlaw was first.
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Re: Ray Dalio bullish on China (China market cap to overtake US in 2030?)

Post by SimpleGift » Tue Aug 13, 2019 9:24 pm

nisiprius wrote:
Tue Aug 13, 2019 9:16 pm
My judgement is that they have done "about the same."
Helpful analysis, nisi. But in all fairness to Mr. Malkiel, we still have quite a long way to go in the 21st century. :wink:

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Re: Ray Dalio bullish on China (China market cap to overtake US in 2030?)

Post by nisiprius » Tue Aug 13, 2019 9:32 pm

SimpleGift wrote:
Tue Aug 13, 2019 9:24 pm
nisiprius wrote:
Tue Aug 13, 2019 9:16 pm
My judgement is that they have done "about the same."
Helpful analysis, nisi. But in all fairness to Mr. Malkiel, we still have quite a long way to go in the 21st century. :wink:
You're right. Accordingly, I've edited my post to read "about the same, so far."

In any case, Malkiel & al. are on paper with specifics, a how-to that can be implemented by retail investing do-it-yourselfers. I'm not quite sure what action plan you can get out of the cluster of papers linked on the Bridgewater Associates page, other than "invest in Bridgewater's funds," nor how you can test them going forward.
Last edited by nisiprius on Tue Aug 13, 2019 9:35 pm, edited 2 times in total.
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Re: Ray Dalio bullish on China (China market cap to overtake US in 2030?)

Post by LadyGeek » Tue Aug 13, 2019 9:33 pm

I removed several posts attempting to moderate the discussion. This is the role of a moderator, not a member. As a reminder, see: General Etiquette
If you feel that someone has attacked you or otherwise violated the policies of this forum, do not respond in kind. Instead, please click the report button on the offending post. This is the quickest method to notify the site moderators.
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Re: Ray Dalio seems like China. Is he biased? Or correct?

Post by teelainen » Tue Aug 13, 2019 9:49 pm

KlangFool wrote:
Tue Aug 13, 2019 9:17 pm
OP,

If it is not safe to invest in China, why should we as an individual investor care about whether China stock market/economy is doing well? It won't matter to us. If the Chinese in China do not believe that it is safe to invest in China, why do you think it is safe for you as a foreigner to invest in China?

KlangFool
KlangFool,

Thanks for your advice.

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Re: Ray Dalio bullish on China (China market cap to overtake US in 2030?)

Post by SimpleGift » Tue Aug 13, 2019 10:13 pm

If interested in an objective study of the Chinese stock market today, this recent paper is one of the best I've seen:
Carpenter et. al. wrote:What capital allocation role can China’s stock market play? Counter to perception, stock prices in China have become as informative about future profits as they are in the US. This rise in stock price informativeness has coincided with an increase in investment efficiency among private firms, suggesting the market is aggregating information and providing useful signals to managers. However, price informativeness and investment efficiency for SOEs fell below that of private firms after the post-crisis stimulus and stocks with higher market and size betas have significantly higher costs of capital, suggesting obstacles to the use of the stock market as an instrument of economic restructuring remain.
One consideration that hasn't yet been mentioned in this thread is that increased foreign participation in China's domestic market is likely to eventually translate into more market transparency and better corporate governance as a whole, with Chinese companies adopting higher accounting standards and disclosure policies. At least this appears to be the trend so far.

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Re: Ray Dalio bullish on China (China market cap to overtake US in 2030?)

Post by galeno » Wed Aug 14, 2019 12:44 pm

We're going to stick with our FTSE all world all cap equity index ETF which is VT. As the Chinese markets grow so should the portion of them in VT.

We'll let FTSE do the thinking regarding Chinese A shares for us. We like the caution.
AA = 40/55/5. Expected CAGR = 3.8%. GSD (5y) = 6.2%. USD inflation (10 y) = 1.8%. AWR = 4.0%. TER = 0.4%. Port Yield = 2.82%. Term = 33 yr. FI Duration = 6.0 yr. Portfolio survival probability = 95%.

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Re: Ray Dalio bullish on China (China market cap to overtake US in 2030?)

Post by gougou » Wed Aug 14, 2019 1:06 pm

The same stocks in China trade at significant discount in HK vs in China. See:
http://finance.sina.com.cn/stock/hkstock/anh.shtml
e.g. Bank of China (HK.3988) trades at a 25% discount in HK vs Shenzhen.
Luoyang Glass (HK.1108) trades at a whopping 86% discount in HK vs Shenzhen.

If you are interested in investing in Chinese stocks, maybe you can buy some of the Chinese blue chip companies listed in HK.

This also shows that some of the Chinese companies are considered very untrustworthy by international investors, and that capital control can distort markets.

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Re: Ray Dalio bullish on China (China market cap to overtake US in 2030?)

Post by guyinlaw » Wed Aug 14, 2019 4:52 pm

gougou wrote:
Wed Aug 14, 2019 1:06 pm
The same stocks in China trade at significant discount in HK vs in China. See:
http://finance.sina.com.cn/stock/hkstock/anh.shtml
e.g. Bank of China (HK.3988) trades at a 25% discount in HK vs Shenzhen.
Luoyang Glass (HK.1108) trades at a whopping 86% discount in HK vs Shenzhen.

If you are interested in investing in Chinese stocks, maybe you can buy some of the Chinese blue chip companies listed in HK.

This also shows that some of the Chinese companies are considered very untrustworthy by international investors, and that capital control can distort markets.
This article discusses the approach you suggest
More than 80% of China's stock market is owned by retail investors with little experience.

This leads to frequent mispricing and interesting opportunities for value investors.

A first approach to Chinese stocks could be looking at companies that trade in Shanghai (A shares) and Hong Kong (H shares). Often they trade at huge differences in value.
https://seekingalpha.com/article/407158 ... lue-stocks

There is an index that buys the cheaper of A vs H shares..
https://research.ftserussell.com/produc ... _Rules.pdf

That ETF is only available in Europe now.
https://www.bloomberg.com/quote/AH50:GR

This arbitrage is not for me. I am going to stick with adding a bit of CXSE ETF.
Why CXSE?

Gain exposure to targeted Chinese equity from companies excluding state-owned enterprises
Use to complement Chinese market exposure while neutralizing companies potentially influenced by government decisions

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Re: Ray Dalio bullish on China (China market cap to overtake US in 2030?)

Post by gougou » Wed Aug 14, 2019 7:25 pm

An alternative to investing directly in China is to invest in some Australia index funds such as VAS (or just long the index futures directly):
https://www.asx.com.au/asx/share-price- ... ompany/VAS

China buys one third of all Australia exports. If China does well so should the Australia stock market.

I'm bullish on China and I long both the Hang Seng index and the ASX 200 index. Even though I could just buy A shares directly I prefer to convert my RMB to USD and buy proxy ETFs because I believe RMB is significantly overvalued.

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Re: Ray Dalio bullish on China (China market cap to overtake US in 2030?)

Post by LadyGeek » Thu Aug 15, 2019 8:05 am

I removed an off-topic post and reply. As a reminder, this is a "no politics" forum. See: Politics and Religion
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Re: Ray Dalio bullish on China (China market cap to overtake US in 2030?)

Post by guyinlaw » Tue Aug 20, 2019 11:41 am

Another reason why China Stock market has been lagging
The Stock Bull’s Buyback Boost

Whatever else you may think about stock buybacks, it’s quite likely that, but for them, the U.S. stock market today would be markedly lower. That is the implication of a study published last year in the Financial nalysts Journal, “Net Buybacks and the Seven Dwarfs,” by three researchers from the Abu Dhabi Investment Authority. They found that net buybacks— the number of shares that companies repurchased across the entire stock market, less the number of new shares issued—explain the bulk of the intermediate- and longer-term differences in stock-market returns around the world.

This comes as a surprise, because the conventional wisdom is that economic growth is by far the most important factor in the outperformance
of certain countries’ stock markets in recent decades. The researchers found little support for this belief.

Take China, whose economy over the past decade has grown at one of the fastest rates of any major country. China’s real GDP, in U.S. dollars, grew at an 8.0% annualized rate over the 10 years through year-end 2018, versus a 2.1% annualized rate for U.S. GDP. And yet U.S. equities’ annualized return over this decade was more than double that of China’s.

No fluke

This was not a fluke. In an analysis of 43 countries’ stock markets between 1997 and 2017, the researchers found those that performed best
were, on average, those with lower economic growth rates. Similarly, the researchers found that the variances in countries’ equity returns
had little to do with any of the other usual suspects to which analysts often turn when trying to account for countries’ varying equity returns, such as inflation, currency fluctuations and profit margins.

To be sure, these other factors (the “Seven Dwarfs” referred to in the title of the study) sometimes will have an outsize shorter-term impact. But their effects often cancel each other out over time. The result is that, over the long term, net buybacks dominate all other factors. For example, the researchers found that net buybacks explain 80% of the difference in countries’ returns between 1997 and 2017.

They have this outsize impact because they increase the share of corporate profits accruing to existing shareholders, just as net issuance
leads to a dilution of their share. Once again China provides a perfect illustration. The researchers calculated that the issuance of new shares in the Chinese market—largely as state-owned enterprises went private— had a “massive dilution effect” of nearly 24% a year between 1997 and 2017. Little wonder, therefore, that the country’s equities struggled over this period, despite its economy’s incredibly fast growth.

U.S. buybacks

The picture painted by the U.S. data is far different. Over the same two decade period, the comparable dilution rate for the U.S. stock market averaged just 1.8% a year, according to the researchers. And this dilution was concentrated in the first years of the period; since 2006, net buybacks in the U.S. have actually been positive (see chart). Buybacks last year set a record, according to S&P Dow
Jones Indices, with S&P 500 companies spending $806.4 billion on repurchases, far outpacing the previous record of $589.1 billion in 2007.

David Santschi, director of liquidity research at TrimTabs, goes so far as to argue that buybacks are one of the two biggest reasons why the stock market has been so strong over the past decade. The other, he says in an interview, has been “massive
money creation by global central banks.”

Still, be aware that net buybacks aren’t particularly helpful as a short term market-timing tool. One reason, according to William Bernstein, co-principal at Efficient Frontier Advisors, is that corporations are notorious for their awful market timing— buying shares in good times when prices are high, and not in bad times when prices are low. Ironically, though, he added, net buybacks’ positive impact on the market’s longterm returns is the same regardless of whether corporations’ individual repurchase decisions were wise or foolish.

The future

The clear implication, Mr. Santschi says, is that—other things being equal—the U.S. stock market’s expected future return will be lower if buybacks are restricted. That isn’t necessarily a bad thing, he adds. And Mr. Bernstein agrees: “What’s good for investors is often not good for society as a whole.” Regardless, Mr. Santschi recommends regulatory changes that would make it easier for investors to
track net-buyback activity. “Companies should be required to disclose their actual buybacks on at least a monthly basis,” he says. Furthermore, “they should not be allowed to announce new buyback authorizations until they have completed all of their existing buyback authorizations.” He says that is because the buyback announcements that some companies currently announce “can be confusing to investors.”

Image
https://www.wsj.com/articles/a-surprisi ... 1554689160

and April 8, 2019, print edition as 'The Stock Bull's Buyback Boost.'

edit : added chart
Last edited by guyinlaw on Tue Aug 20, 2019 1:18 pm, edited 1 time in total.

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Re: Ray Dalio bullish on China (China market cap to overtake US in 2030?)

Post by Day9 » Tue Aug 20, 2019 12:40 pm

Emerging markets is currently about 10% of global market cap. So your stock portfolio should have a 10% allocation to emerging markets if you want to match this (VT Vanguard Total World Stock does this for you already).

There are a lot of Bogleheads who use market cap weight for their domestic-international allocation but I get the sense that many, maybe most American Bogleheads have some home country bias and overweight US stocks. Maybe a subset of these investors really just don't like Europe and Japan and should consider adding an emerging markets fund like VWO to get closer to market cap weight.
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Re: Ray Dalio bullish on China (China market cap to overtake US in 2030?)

Post by nisiprius » Tue Aug 20, 2019 1:00 pm

So are we going to set some kind of tickler file for 2030 so we can see whether the prediction came true?
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