Bridgewater Bails on China, Declares 'No Safe Places to Invest'

Jul 23 2015 | 10:35am ET

The head of one of the world’s largest hedge funds has reversed his long-standing optimism regarding China.

In a note sent to clients earlier this week, Bridgewater Associates chief Ray Dalio wrote that the firm’s views on China had changed and there were now “no safe places to invest,” according to the Wall Street Journal

The Chinese market has experience stomach-churning volatility over the past few weeks, with the Shanghai stock market losing a third of its value before Chinese authorities stepped in with $800 billion in stabilization programs and trading restrictions aimed at calming investors and removing selling pressure. 

Bridgewater joins a number of high-profile managers whose views on China have been challenged by poor performance and slowing economic growth. The conventional wisdom for two decades has been that a rising China would lift all manner of investment boats, from consumer retailers to commodities and luxury goods makers, and the philosophy ushered in a generation of emerging market investment strategies. 

However, top executives at several large investment managers, including Elliott Management, Perry Capital, Pershing Square, have begun to question whether the Chinese market’s foundation was a house of cards, citing the broad use of borrowed money by unsophisticated, but increasingly wealthy, Chinese investors to buy stocks. New rules that bridge the gap between international and domestic capital, essentially allowing cross-market capital flows between Hong Kong and Shanghai, have also contributed to the concerns. 

At the same time, few trust the Chinese government’s economic statistics, regarding them as manipulated to show the best face possible. The country’s 7% annual GDP growth rate, outstanding in a developed country, is low compared to China’s 10-year average, while observers note that much of the GDP activity comes from infrastructure investment and construction, both areas in which China has been known to build first and ask questions later. 

Meanwhile, despite efforts to make investing in mainland China easier for international capital, investors have been spooked by the aggressiveness and seemingly arbitrary measures put in place to support the stock market, such as suspending trading in roughly half the 2,800 Shanghai-listed companies and imposing a six-month ban on the sale of stock by shareholders holding more than 5% of a company’s outstanding shares. 

Accordingly, investors have voted with their feet, with Chinese stock market net capital flows negative for 12 of the past 13 days, according to the Journal. 

Bridgewater’s reversal is especially noteworthy given the firm’s bullishness on China as recently as June, when an investor letter extolled the opportunities that were becoming available due to China’s problems and noted that the problems on the Shanghai exchange were the work of a small group of speculative investors and not reflective of the Chinese economy or Chinese investors. 

Founded in 1975, Westport, CT-based Bridgewater has more than $169 billion in assets under management. 


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