Ray Dalio (Trades, Portfolio) believes the market's "animal spirit" has been reignited. If Chinese policymakers deliver on measures exceeding their promises, the current economic stimulus could become a historic turning point. The founder of Bridgewater Associates likened it to the European Central Bank's 2012 move to save the euro.
With continual efforts to boost growth, policies in finance, fiscal matters, and real estate have shifted significantly. This resulted in a substantial surge in the A-share market. The Shanghai Composite Index recorded its largest single-day gain since October 2008, with transactions nearly hitting 2.6 trillion yuan, setting a new record.
Regarding the recent surge in the Chinese market, Dalio posted on LinkedIn that last week's policy shift could be compared to Draghi's 2012 commitment to save the euro at all costs. He anticipates that highly stimulative policies will follow, supporting asset prices.
Dalio sees these policy shifts as a crucial step in fostering creative productivity. Given the current low valuation of Chinese assets, several factors have collectively reignited the market's animal spirits, drawing many investors to bottom fish.
To achieve what he considers "perfect deleveraging," Dalio suggests China must restructure assets while balancing money and credit creation. This involves lowering interest rates below inflation and nominal growth rates to reduce debt burden without causing excessive inflation. Such a "reflation" strategy would make cash less attractive compared to other assets, thereby encouraging risk-taking.
Policies that support the market and entrepreneurs can also stimulate growth, especially under current circumstances. These approaches have started to reignite bottom fishing and animal spirits, and this trend is clearly evident now.
