Louis Gave, co-founder and CEO at Gavekal, is unequivocally bullish on China.
Speaking at the Strategic Investment Conference in Orlando, Florida, he stated his firm belief that China will soon open up its economic restrictions and become more accessible to investors worldwide.
Reasons Behind China Capital Outflows
Asked about rumors of capital flight out of China into Western assets like Vancouver and Toronto real estate, Gave—who lives in Hong Kong—pointed out that there are several different reasons.
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“The first, of course, is that China is getting richer. When you’re worth a million bucks, you keep all your money at home. When you’re worth 100 million bucks, you diversify.”
Reason number two, he said, is Xi Jinping’s anti-corruption drive. A lot of people who acquired their money “in a somewhat dodgy fashion” had every incentive to take their wealth abroad.
“The beauty, of course, about real estate is you buy real estate in Vancouver, in Sydney, and in Hong Kong—that real estate is yours,” said Gave. “And you own it through a trust structure, something or other, where your name doesn’t even appear, and the money is no longer in the banking system. It can no longer be traced.”
This also explains the Chinese attraction to Bitcoin, he said. “It’s another way to make money disappear.”
Where Is China Likely Going to Be in Five Years?
Gave is very optimistic: “My belief is that in three years’ time, you pretty much won’t have capital controls in China anymore.”
That’s because China is intent on transforming the renminbi into a trading and reserve currency in its own right… and it’s preparing for this step by opening up its bond and foreign-exchange markets.
So, obviously there’s a big risk for all the assets the Chinese are parking their money in today. If and when China gets rid of capital controls and suddenly every Chinese investor can open a US brokerage account or buy German bunds, all the money that was previously funneled into Vancouver real estate, gold, and bitcoins will be spread out among a wide range of assets.
However, there will still be a constant flow of capital as the Chinese will get richer.
What Investors Overlook in China
One thing most people overlook, said Gave, is how vast China’s own assets are. Everyone thinks about the capital outflows from China, but no one thinks about capital inflows into a country possessing the world’s second-largest economy, the world’s second-largest equity market, and the world’s second-largest bond market.
He noted that as China liberalizes, it could become 10% or even 15% of the global bond index.
To learn how to position yourself for China’s rise (or the opposite, if you are on the pessimistic side), watch the full video interview below.
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