The research chief at the world's largest hedge fund unpacks a market that's suddenly opening up to US investors - and why the gold rush is a once-in-a-lifetime opportunity

Hollis Johnson/Business Insider

Karen Karniol-Tambour

• The opening up of a major international financial market has created an opportunity "that essentially didn't exist" for US investors, according to Karen Karniol-Tambour, the head of investment research at Bridgewater Associates.
• "If you believe in diversification, you're not going to get a lot of opportunities where such a large market opens up," she told Business Insider.
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As the head of investment research at Bridgewater Associates, Karen Karniol-Tambour oversees the engine that generates ideas and recommendations for clients of the world's largest hedge fund.

One topic she's been writing about a lot recently is diversification. While most investors think about this concept in terms of owning different asset classes, her work has focused on the question of geographic diversification.

Karniol-Tambour says few investing opportunities are more compelling than Chinese markets right now. She also notes that the country's authorities have shown an unprecedented willingness to open up to foreign investors.

"The thing that makes this opportunity so compelling is that, for many investors, this a market that essentially didn't exist," Karniol-Tambour told Business Insider in a recent phone interview. "If you believe in diversification, you're not going to get a lot of opportunities where such a large market opens up."

Chinese authorities are striving to attract foreign capital by opening up their financial markets amid the global-growth slowdown and the fallout of the trade dispute with the US.

Their efforts have paid off with some landmark developments in the last few months.

In fixed income, the Bloomberg Barclays Global Aggregate Index - a major benchmark of investment-grade debt - started including yuan-denominated government bonds on April 1 and plans to add securities over 20 months.

Additionally, FTSE Russell will review whether to include China in its World Government Bond Index later this year, Reuters reported.

Foreigners owned 2.3% of China's bond market's value at the end of 2018 according to data compiled by JPMorgan. This share is poised to increase as the debt securities are added to the Bloomberg Barclays index and other big benchmarks. JPMorgan estimates that China's inclusion in the major fixed-income and equity indexes would generate $250 billion to $350 billion in inflows, assuming there's up to a 7% weighting in every major index.

The Chinese opportunity is not only opening up in fixed income. In late February, the equity-index behemoth MSCI announced that it was quadrupling the weighting of Mainland China stocks on its benchmarks.

Read more: The world's largest hedge fund just warned that the 'most pro-corporate environment in history' is in danger - and said the fallout could send stocks plunging

At a media briefing ahead of the inclusion, MSCI CEO Henry Fernandez said the "smart" people in emerging markets were excited about the prospect of a huge whale diving into the scene.

He also had a word of caution for those who wished China opened its markets more quickly: If that happened, there would be disrputive selling of holdings in other emerging countries to fund new purchases in China. In other words, China's slow pace actually benefits investors.

Investors looking to diversify their portfolios could consider Chinese bonds, as they are one of the more untapped assets of the world, according to Karniol-Tambour.