Billionaire Ray Dalio says 'almost everybody is underweight on China' and gives advice on how to invest in the world's 2nd-largest economy

• The billionaire investor Ray Dalio has argued that "everybody is underweight on China" and that what he calls the "right type of balance" investing in the country can yield positive results.
• "Our approach is — we call it the all-weather approach — it's a certain balance in which you achieve balance without lowering the expected return. From that, you want to make the tactical moves," he told CNBC.
• Dalio says the Chinese yuan will gain use outside China in the face of a weaker US dollar.
• He also says Indian markets provide potential, though with less liquidity.
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The billionaire investor Ray Dalio told CNBC's "Street Signs Asia" on Wednesday that "everybody is underweight on China" and that he believes investing in the country with the "right type of balance" can yield positive outcomes.

"I think almost everybody is underweight on China if you look at any of the benchmarks relative to world capitalization," Dalio, the cofounder of the hedge fund Bridgewater Associates, said.

"The first move is to get exposure to China in a diversified portfolio," he said. "That means to achieve the right kind of balance of assets in China. Our approach is — we call it the all-weather approach — it's a certain balance in which you achieve balance without lowering the expected return. From that, you want to make the tactical moves."

Dalio said China's currency, the yuan, might be more actively used outside China at a time when the US dollar — the world's reserve currency — and other major currencies had taken a beating with economic growth struggling.

"It's a natural consequence," he said, "because as the dollar and the major reserve currencies are having the challenges that we are talking about, some element of void will be there."

The US Dollar Index, which tracks the strength of the greenback relative to a basket of currencies, has lost about 7% in the past six months. In the same time, the Chinese central bank has allowed the yuan to rise by about 4% against the dollar. The current exchange rate is roughly 1 dollar per 6.8 yuan.

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Dalio acknowledged tactical investments would shift over time.

"And of course those change, depending on the relative pricing of assets, classes and so on. But first ... get the exposure, I believe, to those markets and the currency too," he said.

Major Chinese indexes have risen in recent months underpinned by a recovery from the COVID-19 pandemic and low cases of the virus. China's Shanghai Composite is up 6% this year. By way of comparison, the S&P 500, which hit an all-time high in September, has risen 4% in 2020.

Dalio sees investing opportunities outside China in the region but says many countries, such as India, are lagging behind.

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"There's much less liquidity in those markets," he said.

He said India boasted many "cutting-edge technologies" but was tougher to invest in.

"If there was a much greater development of the capital markets, more liquidity, more opening up of those markets, that would revitalize entrepreneurship," Dalio said. "Being able to raise money in that way and circulate money in a more efficient way would revitalize the Indian economy."

India has recorded the second-most coronavirus cases in the world — nearly 7 million — behind only the US. India has also recorded more than 104,000 COVID-19 deaths.

India's gross domestic product shrank by 23.9% in the April-to-June quarter.