China offers a ‘unique diversification opportunity,’ says Bridgewater’s co-CIO

China’s volatile markets still offer diversification opportunities, says a Bridgewater exec.

China’s markets have been turbulent in the last few years as the world’s second-largest economy flounders in its post-pandemic recovery.

However, the Chinese market and its currency system — alongside Asia — present a “unique diversification opportunity” in relation to North America and Europe, Bob Prince, the co-chief investment officer at Bridgewater Associates, told the South China Morning Post in an interview published on Monday.

This is largely due to lower correlations between different markets as countries turn inward, Prince told the media outlet.

Prince said diversification is one of the most important themes for investors today because geopolitical issues are causing de-globalization.

Countries are also increasingly turning inward to focus on their own issues amid rising protectionism.

These trends are widening the differences in economic conditions across different countries, making them less efficient and more inflationary. They are also lowering correlations across markets, Prince told SCMP.

Such differences present an opportunity to buy into markets that are diversified enough to hedge against others.

In contrast, being invested in just a single market would leave investors “stuck with one monetary system” and the factors that drive risk premiums and assets in that system.

“So you can’t really diversify exposure to discount rates of risk premiums within an economy, but across economies, you can,” Prince said.

Foreign investors have been pulling money out of China over the last three years due to concerns including geopolitical tensions and the country’s flagging economy amid a property crisis.

Some major fund managers told Reuters last month that they are gearing up to put money back into China but are moving cautiously.

Bridgewater, founded by billionaire investor Ray Dalio, is one of the world’s largest hedge funds, with assets under management of $171.8 billion as of March 29.

Bloomberg reported in October that Bridgewater’s onshore China hedge fund was adding local stocks after a September stock rally following Beijing’s aggressive stimulus.

Prince’s comments come on the back of Donald Trump’s win in the US presidential election earlier this month, which is expected to add uncertainty to the Chinese economy.

The President-elect has threatened 60% tariffs on all Chinese exports to the US and pledged higher tariffs across the board.