Top investor optimistic on thaw in ties
Win-win best approach for US and China, says hedge fund boss Dalio
A prominent US hedge fund manager said he is “more optimistic than pessimistic” about the future of the relationship between the world’s two largest economies. And there is a “tremendous” opportunity for cooperation, said Ray Dalio, the founder of Bridgewater Associates.
Dalio, who is also a renowned global macro investor, had recently warned that an anti-China bias in the US has blinded too many for too long to opportunities. He stresses that developing a win-win relationship is the most sensible thing to do given the historical lessons.
He made the comments on Tuesday at the start of a China Town Hall series hosted by the National Committee on US-China Relations, or NCUSCR.
The series is focusing on specific issues in China-US relations: Economics and trade, climate and health, and society and culture.
“Today’s program comes at a critical time in US-China relations with the election of a new (US) president,” NCUSR President Steve Orlins said at the beginning of the 14th annual event on Tuesday night.
“Both countries have the ability to improve the relationship for the benefit of both peoples.”
China and the US have seen their relations fall to the lowest point since they forged diplomatic relations in 1979. Some US politicians have even portrayed China as an enemy, amid heated rhetoric that led to the shuttering of a consulate by each country in July.
Dalio drew on the Thucydides Trap, a term coined for when a rising power threatens to displace the ruling one. He said that in the past 500 years, there have been 16 occasions when a rising power challenged the existing power, leading to war on 12 of those occasions.
“If we can look at those times that they didn’t (go to war), and the need for overwhelming, and recognize and remember history, remember how terrible those are, and how good win-win relationships are and we can evolve without those kinds of things, which I think is most likely. It’s the most sensible thing to do,” he told the online audience.
“Then we will both evolve, and will evolve together probably with arguments, but it’ ll be OK. That is an optimistic scenario for me.”
Orlins said he very much hoped the US administration will heed the optimistic tone and work toward achieving a promising scenario.
“My answer is always it depends on what the Chinese government does, it depends on what the US government does, and it depends on the people, the people relationships that are so strong and hopefully will get stronger,” Orlins said.
Dalio, in response to a question from a participant in Middle bury, Vermont, about areas of cooperation between the two powers, said there are tremendous opportunities.
“It almost goes back to pingpong diplomacy, but the idea of dealing with climate change, that’s a common interest. Not only this pandemic, but global health issues,” he said.
The reestablishment of communications and looking for areas of cooperation would go a long way toward improving the psychology and demonstrating the win-win potential of those relationships, he added.
Financial center
Dalio, who is “overweight” China in his investment portfolio at his hedge fund — one of the world’s largest — encourages others also to look at the Chinese markets. He said these are underinvested, and the country will inevitably catch up as a power in reserve currency and as a financial center.
In 2015, only 1 percent of the markets in China were accessible to foreign investors. Now, more than 60 percent are available to them, Dalio noted.
Though China makes up roughly 15 percent of world equity market capitalization, it accounts only for just a small percentage of global investors’ portfolios, according to Dalio.
He made similar points in an opinion article published in the Financial Times late last month. In the article, he said the world is underweight Chinese stocks and bonds, and that discrepancy is at least due in part to anti-China bias, a situation he believed “is about to change”.
“As a result, I expect China to enjoy favorable capital inflows that will support the currency, already at a two-year high, and financial markets, too. All this argues for a China overweight in my portfolio,” wrote Dalio, referring to a term that indicates market bullishness.
“Prejudice and bias always blind people to opportunity. So, if you have been a China skeptic for reasons that don’t square with what is happening there, I suggest you clear your mind.”
The renminbi, China’s currency, accounts for only about 2 percent of world trade financing while the US dollar accounts for over 50 percent, according to Dalio.
“I expect that to change as China moves to internationalize the renminbi and open up its capital account,” he said.