"La QUESTIONE non è SE INVESTIRE o NO, ma QUANTO INVESTIRCI" le PAROLE di RAY DALIO!

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2 Apr 202408:52

Summary

TLDRThe video discusses investment strategies in China despite market challenges and government interventions. It highlights Ray Dalio's continued investment in China, emphasizing learning from both rising and falling markets. The script also covers the latest US Gross Domestic Product data, the S&P 500's Price-to-Earnings ratio, and Warren Buffett's market valuation indicator. Additionally, it touches on the Eurozone's manufacturing PMI, indicating a continued decline in manufacturing activity.

Takeaways

📉 Ray Dalio, founder of Bridgewater, remains optimistic about investing in China despite market downturns and contrasting opinions from peers.
🌏 The Asian dragon market is experiencing unprecedented lows due to government interventions and a slowdown in growth, with foreign investments in China dropping significantly.
💹 The World Bank and the International Monetary Fund predict a further slowdown in China's growth in 2024, mainly due to reduced foreign investor confidence, high debt levels, and a struggling real estate sector.
📉 Foreign investments in China have seen a decline of 60% in just over 5 years, reflecting the ongoing challenges in the financial markets, with a loss of over 50% in total market capitalization in the last 3 years.
🤔 Dalio believes that China's problems are closely tied to the management of the country's economy and politics, and he sees signs that Beijing might soon start quantitative easing and a gradual restructuring of debt.
🌐 The conflict between China and the US is identified as one of the biggest challenges that China will face in the coming years, alongside wealth disparity and climate change.
📈 Despite geopolitical risks, Dalio argues that these challenges do not outweigh the reasons to invest in China, and he questions the amount to invest rather than whether to invest at all.
💭 The market sentiment towards Chinese companies is still cautious, with investors not yet ready to buy into them despite historical low valuations.
📊 The US Q1 GDP data beat expectations at +3.4%, but the markets did not respond positively, possibly due to the data release occurring while markets were closed.
📉 The Price-Earnings ratio and the Cyclically Adjusted Price-Earnings ratio (CAPE) are highlighted as important indicators to consider, with the latter taking into account a 10-year average of earnings to account for economic cycles.
🔄 The Buffett Indicator, which compares the total market capitalization to the GDP, suggests that while the US market may be overvalued, China's market is undervalued, although many unlisted companies in China skew this data.

Q & A

What is Ray Dalio's stance on investing in China despite the market challenges?
-Ray Dalio, owner of one of the world's largest investment funds, Bridgewater, defends his decision to continue investing in China. He believes that investing in China has been successful across different market conditions and has allowed him to learn to invest in both rising and falling markets.
What challenges does China face according to Ray Dalio?
-Dalio identifies wealth disparity, climate change, and the trade conflict with the United States as the biggest challenges China will face in the coming years.
How has China's economic growth been estimated for 2024 by the World Bank and the International Monetary Fund?
-The World Bank and the International Monetary Fund estimate a slowdown in China's growth in 2024, mainly due to reduced confidence from foreign investors, high levels of debt, and significant difficulties in the real estate sector.
What impact has the Evergrande collapse had on China's economy?
-The collapse of Evergrande has exacerbated China's economic struggles, with the country grappling with reduced foreign investments, which fell by 88% last year, and a financial market that has continued to suffer.
How has the US' Gross Domestic Product (GDP) data impacted the markets?
-The US GDP data, which beat analysts' expectations at a +3.4% growth, did not lead to particularly positive market reactions, possibly because the information was released when the markets were closed.
What is the current Price-to-Earnings (P/E) ratio for the S&P 500?
-The current Price-to-Earnings ratio for the S&P 500 is around 28.4, which is not a low value but is significantly lower than the peaks reached in 2009.
How does the Cyclically Adjusted Price-to-Earnings (CAPE) ratio work and what is its current value?
-The Cyclically Adjusted Price-to-Earnings (CAPE) ratio is an extension of the traditional price-to-earnings ratio that takes into account a 10-year period to adjust for economic cycles. Currently, the CAPE value is at 35, which is considered controlled.
What does Warren Buffett's market valuation indicator suggest about the US and Chinese markets?
-Warren Buffett's market valuation indicator, which compares the total market capitalization to the country's GDP, suggests that the US market is near 200%, indicating a possible overvaluation, while China's market is close to 30%, which might indicate undervaluation considering the number of unlisted companies.
How has the manufacturing PMI for the Eurozone fared in recent months?
-The Eurozone's manufacturing PMI has seen a more significant contraction in March, falling to 46.1 from 46.5 in February. This is the 21st consecutive month where the activity is below the 50-point threshold, indicating a general contraction in the European manufacturing production system.
What are the implications of the Eurozone's manufacturing PMI being below 50 for an extended period?
-An extended period of the manufacturing PMI being below 50 indicates a persistent contraction in the manufacturing sector, which is not a positive sign for the Eurozone's economic health.
How does the perception of risk by investors affect the investment decisions in China and the US?
-Investors' perception of risk influences their willingness to invest in markets like China and the US. Despite the valuations being at historical lows, investors seem not ready to invest in Chinese companies due to the high perceived risk. On the other hand, the US market, despite a high valuation, is not necessarily in a bubble but may indicate strong growth potential due to the large number of listed companies.

Outlines

00:00

📉 Economic Challenges and Market Insights

This paragraph discusses the current economic challenges faced by China and its impact on the Asian dragon market. It highlights the market's downturn after years of rally in Chinese markets up to 2021, attributed to government interventions and tensions within the economy. The speaker, Realio, presents a differing view, suggesting that despite the challenges, there are still opportunities for investment in China. The paragraph also covers the latest data on the U.S. gross domestic product (GDP), which beat expectations but did not significantly impact the markets due to its release while markets were closed. Additionally, it touches on the wealth gap, climate change, and the trade conflict with the United States as major issues for China in the coming years. The World Bank and International Monetary Fund's 2024 data indicates a slowdown in China's growth due to reduced foreign investor confidence, high debt levels, and a struggling real estate sector. The paragraph concludes with a discussion on the decline in foreign investments in China and the impact on financial markets, with a significant loss in market capitalization over the past three years.

05:00

📊 Market Valuation and Economic Indicators

This paragraph delves into the analysis of market valuation and economic indicators, focusing on the Price-to-Earnings (P/E) ratio and its limitations. It introduces Robert Shiller's modified version of the P/E ratio, which considers a 10-year average of earnings adjusted for inflation. The current P/E value is mentioned, which, while not alarmingly high, is still far from the lows seen in 2009. The 'Buffett Indicator' is also discussed, which compares the total market capitalization to the country's GDP to determine market overvaluation or undervaluation. The paragraph highlights the differences in these values between countries like the United States and China, reflecting the perceived risk and growth potential in their respective markets. It also touches on the latest manufacturing PMI data for the Eurozone, indicating a contraction in the manufacturing sector, marking the 21st consecutive month below the 50-point threshold, which is a negative sign for the economy.

Mindmap

Keywords

💡Investment

Investment refers to the act of committing money, time, or other resources into a venture with the expectation of generating profit or achieving a desired outcome. In the context of the video, it relates to the decision of investors, including Ray Dalio, to continue investing in the Chinese market despite economic challenges and government interventions. The video discusses the risks and potential rewards of such investments, highlighting the importance of understanding market dynamics and the broader economic environment.

💡Chinese Market

The Chinese market refers to the economic environment of China, including its stock markets, real estate, and overall economic growth. The video script discusses the challenges faced by the Chinese market, such as a slowdown in growth, high levels of debt, and a struggling real estate sector. It also mentions the decrease in foreign investments and the impact of these issues on the financial markets.

💡Economic Indicators

Economic indicators are quantifiable measures that provide insights into the economic performance of a country or region. They are used to assess the health of an economy, predict future trends, and guide policy decisions. In the video, several economic indicators are discussed, such as the Gross Domestic Product (GDP), Price-to-Earnings (P/E) ratio, and the Buffett Indicator, which are used to evaluate the state of the U.S. and Chinese economies.

💡Growth Slowdown

A growth slowdown refers to a period when the rate of economic growth decreases. This can be due to various factors, such as reduced consumer confidence, high debt levels, or external economic pressures. In the context of the video, China's growth slowdown is attributed to the challenges in its real estate sector, high debt, and decreased foreign investments.

💡Geopolitical Risks

Geopolitical risks are the potential threats to a country's economy or financial markets that arise from political developments, international conflicts, or changes in government policies. These risks can affect investment decisions and market stability. In the video, Ray Dalio acknowledges the geopolitical risks associated with investing in China, such as its status as a communist dictatorship, rivalry with the United States, and the possibility of a deeper conflict between the two major economies.

💡Debt Management

Debt management refers to the strategies and policies used by governments or organizations to maintain a sustainable level of debt. This includes borrowing, repaying, and restructuring debt to ensure financial stability and economic growth. In the video, it is suggested that Beijing might start a quantitative easing and a progressive restructuring of debt, which would be part of the country's efforts to address its economic challenges.

💡Market Valuation

Market valuation is the assessment of the value of a company or a market based on its financial performance and future prospects. It is used by investors to determine if a stock or the entire market is overvalued or undervalued. The video discusses the concept of market valuation in relation to the Buffett Indicator, which compares market capitalization to GDP to assess whether the stock market is overvalued or not.

💡Manufacturing Activity

Manufacturing activity refers to the production processes and output of goods in the manufacturing sector of an economy. It is a key indicator of economic health and can influence employment, trade, and overall GDP. The video script highlights the latest data on the manufacturing Purchasing Managers' Index (PMI) for the Eurozone, which shows a decline in activity, indicating a potential contraction in the manufacturing sector.

💡Purchasing Managers' Index (PMI)

The Purchasing Managers' Index (PMI) is an economic indicator that measures the health of the manufacturing and services sectors based on survey data from purchasing managers. A PMI reading above 50 indicates expansion, while a reading below 50 signifies contraction. The video discusses the Eurozone's manufacturing PMI, which has been declining, suggesting a negative impact on the region's economic outlook.

💡Quantitative Easing

Quantitative easing is a monetary policy in which a central bank creates new money to buy government bonds or other financial assets to increase the money supply and encourage lending and investment. It is typically used when interest rates are already very low and cannot be reduced further to stimulate the economy. In the video, it is suggested that China might initiate a quantitative easing policy as part of its economic management strategy.

💡Buffett Indicator

The Buffett Indicator, named after investor Warren Buffett, is a market valuation indicator that compares the total market capitalization of publicly traded companies to a country's GDP. A value above 200% may indicate that the stock market is overvalued, while a value below 100% may suggest undervaluation. The video uses this indicator to compare the perceived overvaluation of the U.S. market with the potential undervaluation of the Chinese market, considering various risks and the number of companies listed.

Highlights

Reid Alo continues to invest in China despite market challenges.

The Asian dragon market is at its lowest levels in a negative sense.

Chinese markets have been rallying for years until 2021, but now face difficulties due to government interventions.

Realio believes that the Chinese market can recover, differing from the general opinion.

The latest data on the US Gross Domestic Product (GDP) shows a 3.4% increase, exceeding expectations.

Markets did not react positively to the GDP data, possibly due to it being released while markets were closed.

The Price Earnings (PE) ratio stands at 28.4, which is high but not at its peak.

Robert Shiller's Cyclically Adjusted Price Earnings (CAPE) ratio is at 35, which is controlled but below the level that caused the 1929 market crash.

Warren Buffett's market indicator suggests the US market may be overvalued at near 200%, while China's is close to 30%.

Investments in China have dropped 88% last year and foreign investments are at a 5-year low, down 60% since 2018.

China's growth slowdown is attributed to lower foreign investor confidence, high debt levels, and a struggling real estate sector.

Reid Alo suggests that China's problems are closely linked to the management of the country's economy and politics by its leaders.

There are signs that Beijing might start quantitative easing and a gradual restructuring of debt.

Some investors avoid China due to geopolitical risks, its communist dictatorship status, rivalry with the US, and the potential for deeper conflict.

The key question for investors, according to Realio, is not whether to invest in China but how much to invest.

The European manufacturing PMI fell to 46.1 in March, marking the 21st consecutive month below the 50-point threshold.

The general contraction of the European manufacturing production system is indicated by the PMI value.

Reid Alo has stated that investing in China has been a success, allowing him to learn to invest in both rising and falling markets.