Ray Dalio sees the need to have “a significant portion” of its portfolio in Chinese assets for long-term diversification and shorter-term tactical trading purposes.

Regardless of who wins the presidential election, the U.S. will run bigger deficits and sell more debt, and because investors globally are overweight in U.S. bonds they will diversify, including by investing more in China, the Bridgewater Associates founder said. He favors Chinese bonds over U.S. debt and expects the Chinese currency to benefit from capital inflows.

“The interest-rate differentials are favorable” for China, Dalio, whose firm oversees about $148 billion, told Bloomberg Television’s David Ingles. “The growth rate differentials are favorable.”

Paring back control helps liberalize China’s currency market, an important component of Beijing’s long-term plan to encourage greater global usage of the yuan. Reducing China’s reliance on the U.S. dollar is increasingly pressing as tensions with Washington spill over to the financial sphere.

China is on track to be the world’s only major growth engine this year after Beijing’s aggressive approach to controlling the pandemic proved effective. Policy makers have eschewed the aggressive monetary policy easing seen elsewhere, meaning China’s 10-year government bonds still yield over 3%, versus less than 1% for U.S. Treasuries.

Global Yuan

Inflows into China will help the yuan to become a reserve currency faster than current expectations, with the shift in global currency power dynamics gradual and then accelerating.

“I don’t believe the renminbi will be a viable reserve currency quickly,” Dalio said. “But I do believe it will happen much faster than anybody expects.”

China took more steps last month to loosen its grip on the yuan than at any time since curbs were imposed in the aftermath of a chaotic devaluation in 2015. Paring back control helps liberalize China’s currency market, an important component of Beijing’s long-term plan to encourage greater global usage of the yuan. Reducing China’s reliance on the U.S. dollar is increasingly pressing as tensions with Washington spill over to the financial sphere.