Ray Dalio recently released a piece titled “To Answer the Question of Why I Invest in China.” Among the many reasons Dalio lists for putting money into China, perhaps the most relevant one is that, historically, the best time to buy assets is when they are hated and cheap. Especially, Dalio says, since the “economic leadership is about to do something like a ‘beautiful deleveraging.’”
We’ve discussed China a few times before—we believe that the potential for a re-rating is there, but have refrained from trying to catch the falling knife due to the country’s persistent negative macroeconomic headwinds.
Last week, however, China published the country’s official manufacturing PMI for March, which came in above estimates at 50.8 (versus an expected 50.1), highlighting an expansion in manufacturing activity. The Caixin China PMI rose to 51.1 (expected 51)—its strongest level since February 2023. Combined with the Hang Seng China Enterprises Index being up around 16% from its January lows and the MSCI China Index being up around 12%1, some investors are calling for the end of outflows from China, unwinding the “Buy India, Sell China” trade.
The prevailing narrative seems to be slowly shifting, but it remains to be seen if the good economic news will continue. Until we get further confirming data, it seems that maintaining a cautious underweight to Chinese risk assets seems warranted.
Maverick Lin contributed to this article.