Last quarter, it became evident to thousands of investors just like you just how bullish Ray Dalio had become on Asian markets. Still, while most thought it was a one-time allocation to gain the proper amount of exposure into that section of emerging markets, today, he is proving to be on a much bigger quest.
When these guys buy into an investment thesis or strategy, they typically do so in blocks, making their timing seem impeccable, not to mention they pay multi-million dollar salaries to analysts and other staff to execute these investments, so stealth is high in the request list.
Because of this, it is important to dissect Bridgewater Associates' largest position and the one that called for the most increase in recent months. This one is the iShares Core MSCI Emerging Markets ETF (NYSEARCA: IEMG), and the components in this ETF could be a confirmation of the coming year of the dragon for Asian markets.
Reverse engineering
Asian equities, especially Chinese ones, have been beaten up during 2023. Because of all the geopolitical tensions between Xi Jinping and Joe Biden, most investors have termed China stocks 'uninvestable,' passing on a gold mine of potentially unrealized value to be taken advantage of.
However, it looks like Ray Dalio is again going against the grain, not fearing what other average investors may be avoiding in these companies. By previously buying shares in the iShares MSCI China ETF (NASDAQ: MCHI), he directly exposed his investment dollars to Chinese stocks.
But what does that have to do with his newest allocations into the emerging markets ETF? Well, when you look at the top holdings and components within that ETF, it will become apparent to you that Dalio's shopping list carries one clear trend centered around Asian stocks.
Coming at number one, Taiwan Semiconductor Manufacturing (NYSE: TSM) is the largest holding in this ETF. Coming in second place is Samsung Electronics (OTCMKTS: SSNLF), and Tencent Holdings (OTCMKTS: TCEHY) takes third place. Going down the list, you'll notice that a lot of these holdings are all located in Asia.
Ray Dalio is seeing a bigger trend in one of Asia's most awaited comeback investments, the Chinese consumer. Even the powerbrokers at The Goldman Sachs Group (NYSE: GS) have had to admit they got the timing wrong after calling for a rally during all of 2023.
If you need to side with one of the two differing opinions, go with Dalio's because he is not getting paid to broadcast his opinion; he is getting paid to make every investment dollar go to war and return to camp with a few prisoners.
The time is near
It seems that Goldman waved the white flag slightly too prematurely, as earnings season demonstrated that the Chinese consumer may return sooner than expected. If you need an aggressive example of why this is so, look at the rally in PDD (NASDAQ: PDD) after its earnings announcement a couple of weeks back.
With a nearly 30.0% jump in less than a month, PDD set the example for what is happening underneath the Chinese economy's hood. This is backed, of course, by a staggering 10.1% in November, which also had its own trickle-down benefits into other stocks.
The biggest names in China's consumer sector, Alibaba Group (NYSE: BABA) and JD.com (NASDAQ: JD), are also going to inevitably see expanding financials of their own as retail sales push their bottom lines higher.
And that they did; Alibaba posted massive improvements on a year-on-year basis, as their quarterly financials showed, though markets still sold off the stock because management chose to skip its plans of spinning off the Ali Cloud business branch.
Considering that more than two-thirds of the company's revenue comes from Chinese retail and wholesale activities, it would make no sense to see the stock decline as much as it did for a minority segment not spinning off. Think about it: it's not like the cloud business is closing; it just remained as it was.
Dalio knows this and is indirectly exposing himself to the stock. Remember, stealth is high on the request list for these big guys. But Dalio wouldn't be himself if he didn't look to hedge or diversify his risks, which is why he was pleased to see the ETF holds JD.com as well.
So, will this be the year of the dragon? It looks like Dalio is saying yes, while Goldman is saying no; pick your battles wisely, and you might just win the war.
