At the Arizona Public Safety Personnel Retirement Trust’s Wednesday board meeting, Paul Podolsky of Bridgewater Associates told pension officials why China is still the place to be for investors.
Podolsky, head of China research and a senior portfolio strategist at the world’s largest hedge fund, works for a guy who is a longtime China investor. Ray Dalio made some news Wednesday by warning China not to follow up on restricting shipments of rare earths to the US because it would lead to a protracted trade war.
Podolsky told the $10.3 billion plan’s officials that there are currently three questions on an investor’s mind: Why China now? Why add Chinese assets to your portfolio? How is a China investment a market beater?
On the first question, Podolsky said the emerging market nation, now the world’s second-largest economy, is on its way to becoming the largest.
“Even though they’re enormous…it’s likely soon that they’re going to be the biggest economy in the world,” he said, specifically in about 10 years. He said this is because of the country’s decision to open up its markets to outsiders. “This is the equivalent of Western Europe opening up,” he said, meaning that when a once closed-off nation makes its markets liquid, the financial world changes.
On the second question, Podolsky said now is a good time for an institution to get involved in China, not just because it’s a great portfolio diversifier, but because Chinese assets are not correlated closely to others. If you’re going to make your way to China, he said to make sure you know where in the country you’re putting your money.
On the third question, he said if an institutional investor wants to use China to beat its benchmark, it really should lever up on China to maximize its return. If it didn’t, then there’s no harm in sticking to tracking the index.
Officials at the pension fund then asked for the Ray Dalio employee’s take on the increasing trade tensions between President Trump and Xi Jinping, to which Podolsky replied that they don’t really bother Bridgewater.
“It’s true that we’re definitely in a trade conflict with China,” Podolsky said before reasserting his bullish stance. “The big picture, though, I’d say is even notwithstanding the trade war, it doesn’t really change from an investment perspective what I think about China’s assets.”
Podolsky said the trade war is narrowly about market access and the protection of intellectual properties. Broadly, however, he said it’s about a wealth shift, which the world has seen throughout history. “If you look back further through time, China was one of the dominant powers,” he said.
The Arizona pension plan is a nine-year client of the $160 billion Bridgewater, according to Mark Steed, its chief investment officer.
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