Should you invest in Chinese stocks in 2021? Ray Dalio, Charlie Munger, etc. argue YES

Key Points

  • Bear activity in China has been the norm in the past decade
  • Due to the huge sell off on Chinese equities caused by regulatory concerns, there are opportunities for investment
  • Many portfolios are underweight in China and emerging markets

Reading Time 4Min

A lot has happened in the past few months of 2021 in the Chinese economy.

The Chinese government has once again tightened regulations on private enterprises and clamping down on market dominance, with anti-monopoly regulators handing out huge fines to tech giants Alibaba and Tencent. Several sectors have been targeted, in particular for-profit education,ย which had half of its $100 billion valuation wiped out in a day.

Around the world, investors ask themselves if now is the time to double down on China โ€“ or investing in Chinese stocks is too risky at this point.

Whether or not you should invest in Chinese stocks is dependent on your personal investing strategy, including your risk appetite.

However, if you are looking for some good arguments on why an investment in Chinese stocks might make sense โ€“ we are here to support you.

We compiled articles and interviews of 5 high-profile investors like Ray Dalio or Charlie Munger who are bullish on China โ€“ arguing why they think you should invest in Chinese stocks in 2021.

1. Jeffrey Kleintop โ€“ Chief Global Strategist at Charles Schwab

โ€œThe government is attempting to restructure the economy and not solely crack down on private businessโ€

Mr Kleintop points out that targeted regulatory concerns are not new. Chinaโ€™s stock market has averaged a 28% drawdown from peak to trough annually over the past 20 years, with 17 of them experiencing some sort of bearish activity. However, historically investors have been compensated for this volatility with strong annual returns. In the past two decades the MSCI China Index has outperformed the S&P.

In addition, he focuses on the fact that regulatory tightening is focused on specific sectors such as education and gaming, and there are also sectors being pushed forward by the government – such as semiconductors, green technologies, and consumer brands. These are the sectors investors should focus on. [1]

2. Marko Papic โ€“ Chief Strategist at Clocktower Group

Mr Papic believes that there are opportunities in the Chinese market, both tactically and strategically. On the tactical front, he believes that, for investors with the adequate risk tolerance, bottom fishing ADRs is definitely a viable strategy due to the significant sell off Chinese equities have faced. Many of these companiesโ€™ stocks have hit key resistance levels, hence providing upside potential.

Looking at a longer time horizon, strategically, China is the only country in the world that provides sectoral asset allocation for free. The government has emphasised its focus on the โ€œhard techโ€ space (such as EV and batteries), as for China it is not just about addressing climate change, but there are also geopolitical and national security motivations. [2]

3. Ray Dalio โ€“ Brightwater Associates Co-Chairman

Mr Dalio discusses the prospect of the Chinese market by understanding the motivations of the actions of the Chinese government. The government, while maintaining some political policymaking ties to its party name, has deployed capitalistic economic policies throughout the past 2 decades. Some metrics even rank China as โ€œmore capitalisticโ€ than European countries. In addition, other recent actions, such as the newest opening of a third exchange in Beijing for small-mid cap companies, show Xi has little intentions to tear down private companies within China. [3]

4. Charles Munger โ€“ Vice Chairman of Berkshire Hathaway

โ€œI donโ€™t care if the cat is black or white, as long as it catches miceโ€.

Berkshire Hathaway Vice Chairman Charles Munger invested early in Chinese company BYD and increased a stake in Alibaba that is held by the company Daily Journal recently. He shared that he believes China will continue to let businesses flourish, mainly because it has been a success, measured by the millions of people that have been lifted out of poverty. [4]

5. Mary Erdoes – J. P. Morgan Asset & Wealth Management CEO

At CNBCโ€™s Delivering Alpha conference, Ms Erdoes believes that โ€œChina is on saleโ€, as the MSCI China Index is down nearly 20% this year, while the S&P 500 Index is up nearly 16%. She believes that the current concerns about China are not new to China or even the US and is surprised by the public reaction surrounding the current situation. Her case for investment rests on the broad view of gaining exposure to a huge rising middle-class economy, and believes many portfolios are underweight China and emerging markets in general. [5]

Disclaimer: Our content is intended to be used solely for informational and educational purposes, and not as investment advice. Always do your research and consider your personal circumstances before making investment decisions. ChineseAlpha is not liable for any losses that may arise from relying on information provided.

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