In a post on October 1, Ray Dalio, the founder and co-chairman of Bridgewater Associates, shared his view on the US-China trade war. The legendary hedge fund manager sees a greater risk for China. He expects President Trump to take a drastic investment curb decision against China. On September 27, CNBC reported that the US might restrict investments in China. Ray Dalio said, “regarding the capital and currency wars, the ability of the US president to unilaterally cut off capital flows to China and also freeze payments on the debts owed to China and also use sanctions to inhibit non-American financial transactions with China must be considered as possibilities.”
He also said, “that’s why the proposed step of limiting American portfolio investments in China makes me both think about the implications of this step and wonder if it is an inching toward bigger moves.” However, restricting the investment flow between the two largest economies will impact global trade.
Tesla and General Motors might be in trouble
China would retaliate against any investment sanctions. For instance, China imposed tariffs on US goods in response to US tariffs. If Ray Dalio’s fears come true, some US businesses might be in trouble. The volatile yuan impacted Tesla’s (TSLA) revenues. Notably, in the first six months of 2019, 13.5% of Tesla’s revenues were from China.
In the second quarter, General Motors (GM) delivered around 7,53,926 vehicles in China. Based on a Forbes report, General Motors’ revenues from China could rise to $2.1 billion this year. Also, investment restrictions in China could obstruct the capacity expansion. General Motors was among Bridgewater Associates’ new buys in the last quarter. Any escalation in the US-China trade war will also impact stocks like Boeing and General Electric.
Ray Dalio’s portfolio amid the trade war
Bridgewater Associates has invested 76.6% of its portfolio in the financial sector. The Financial Select Sector SPDR ETF has risen 15.1% in 2019. However, the ETF underperformed the S&P 500 Index by 2.2 percentage points. Overall, Ray Dalio thinks that financials will outperform amid trade war uncertainties.
In the second quarter, Bridgewater Associates’ top holdings were the Vanguard FTSE Emerging Markets Index Fund ETF, the SPDR S&P 500 ETF, the iShares Core MSCI Emerging Markets ETF, the iShares MSCI Emerging Markets ETF, and the iShares Core S&P 500 ETF. These holdings represent 15.86%, 15.58%, 9.41%, 8.65% and 5.06% of the firm’s portfolio, respectively.
Bridgewater Associates’ top buys in the second quarter were the SPDR Gold Trust, the iShares MSCI Brazil Capped ETF, the iShares MSCI India ETF, the iShares iBoxx $ High Yield Corporate Bond ETF, and the iShares iBoxx $ Investment Grade Corporate Bond ETF. The firm increased its holdings in these stocks by 1.22, 0.89, 0.82, 0.69 and 0.65 percentage points, respectively, in the second quarter.