Corrects value in paragraph 12 to \u201ca couple of hundred billion dollars\u201d.<\/p>\n
Quarterly U.S. regulatory filings this week revealed that Scion Asset Management, the hedge fund founded by Michael Burry, doubled down on China stock bets. The question is, should investors? <\/p>\n
\n
Burry\u2019s investment moves are widely followed as he correctly called the collapse of the U.S. housing market that triggered the 2008 financial crisis. He shot to fame after appearing in Michael Lewis\u2019s book \u201cThe Big Short,\u201d that was later a movie. <\/p>\n
The filing with the Securities and Exchange Commission, known as a 13F, revealed Scion had 10% of his U.S.-listed portfolio in China retailing giant JD.com
\n JD,
\n -1.53%<\/bg-quote>
\n and 9.6% in e-commerce giant Alibaba
\n BABA,
\n +2.16%<\/bg-quote>
\n at the end of the first quarter. Scion was also a buyer of those names in the fourth quarter of 2022, but as the holdings information is backward looking, it\u2019s unclear if the fund remains invested.<\/p>\nBurry hasn\u2019t responded to a request for comment from MarketWatch.<\/p>\n
Scion wasn\u2019t alone in that China enthusiasm, though. Hedge fund Third Point also took a new position in Alibaba, and hedge fund Hillhouse Capital\u00a0Advisors, filing under HHLR Advisors, added to its position in Alibaba, PDD Holdings and other China names. <\/p>\n
Investors have been riding out a not-so-easy year for China stocks. U.S.-listed shares of JD.com are down 32% year to date, while Alibaba, which will report its latest results on Thursday, has eked out a 0.28% gain, after dropping more than 20% in 2022. <\/p>\n
Online retailer PDD
\n PDD,
\n +0.67%<\/bg-quote>
\n is off 18%, with EV maker NIO
\n NIO,
\n +1.52%<\/bg-quote>
\n down 15%, while online internet tech group NetEase
\n NTES,
\n -1.64%<\/bg-quote>
\n is up 23%. Reporting Tuesday, Chinese search engine operator Baidu\u00a0
\n BIDU,
\n -1.63%<\/bg-quote>
\n got a boost after beating forecasts and swinging to a first-quarter profit.<\/p>\nSome of the wobbles for China stocks are down to uncertainty over how long the country will take to emerge fully from its zero-COVID policy. Data out Tuesday showed disappointing growth in China retail sales and industrial production, and a youth unemployment rate at a record 20.4%.<\/p>\n
Among those not ready to give up on China is Thomas Hayes, chairman of hedge fund Great Hill Capital. He has owned Alibaba for over a year and says right now is an \u201copportunity to buy and an opportunity to hold. I think we\u2019re in the final stages of the shakeout that\u2019s been going on for the last year.\u201d<\/p>\n
\u201cThere\u2019s not a business globally of its scale,\u201d Hayes says of Alibaba in a telephone interview with MarketWatch. And that\u2019s as shares are also trading at deep discount to intrinsic value \u2014 if the business had to be liquidated. He sees big benefits from IPOs Alibaba\u2019s management is planning for many different units.<\/p>\n
For instance, Alibaba could deliver China\u2019s next Costco
\n COST,
\n -0.23%<\/bg-quote>,<\/span>
\n with its Freshippo grocery business, where an IPO worth $10 billion is being planned, says Hayes. Then there\u2019s the global e-commerce business Lazada and AliExpress, with plans for an IPO of $39 billion, and all that all before touching on potential for Alibaba\u2019s cloud unit, which Hayes is most excited about. He refers to a report by global management consultant McKinsey that has predicted the China cloud business will triple by 2025. <\/p>\nAdding all this up, he said \u201cyou\u2019ve got a business that would be hard to replicate for less than $1 trillion. And it\u2019s trading at a couple of hundred billion dollars in the markets right now.\u201d For now, the problem is some despondency toward Chinese stocks, that\u2019s partially justified due to \u201cmercurial government leadership behavior,\u201d which is changing. <\/p>\n
The government now wants to drive domestic spending and Alibaba is well placed for that, said Hayes, who thinks that in two to three years, the stock could double. He owns both the ADR and Hong Kong-listed shares. <\/p>\n
KraneShares, an exchange-traded fund provider that focuses on Chinese listed companies, holds Alibaba, Baidu and other big-name Chinese stocks in the KraneShares CSI China Internet ETF
\n KWEB,
\n -0.14%<\/bg-quote>.<\/span>
\n The fund is \u201chighly geared to domestic consumption in the country,\u201d KraneShares chief investment officer Brendan Ahern, told MarketWatch. (KraneShares is majority owned by China International Capital Corporation.)<\/p>\n\u2018Not like flicking a switch\u2019<\/h2>\n
\u201cBroadly speaking what\u2019s happening, China in this post-zero COVID world is having this incremental economic recovery. It\u2019s not like flicking a switch where all of a sudden everyone is back at it. Your consumer confidence has to grow, you know, people have to see the economy is improving, and our thesis has been that Q1 will be better than Q4, Q2 will be better than Q1,\u201d Ahern told MarketWatch. <\/p>\n
From excitement around the reopening last year, China faded from the spotlight for investors, partly owing to a U.S. banking crisis. In a note to clients earlier in May, JPMorgan acknowledged that the country\u2019s COVID consumption recovery has thus far lagged behind that of other major economies. <\/p>\n
\u201cThis has led to more subdued growth expectations regarding earnings and reduced positioning in cyclical bets in favor of thematic bets,\u201d wrote the bank\u2019s China equity strategist Wendy Liu.<\/p>\n
But like others, she appealed for patience, noting that China consumer confidence tends to lag business confidence by about six months. \u201cGiven that business confidence first improved in November 2022, assuming a 9-10-month lag,\u00a0late 3Q\/4Q 2023\u00a0is when we may see better data, all else being equal,\u201d said Liu. <\/p>\n
Creating more buzz around investing in China was a recent Economist magazine cover, which discussed slowing growth, though based on the magazine-cover theory, could be seen by some as a contrarian indicator. <\/p>\n
Hedge-fund manager Hayes is also sanguine about China\u2019s progress. \u201cYou\u2019ve got to give the patient a little time to heal. What happened in China over the last three years was completely devastating,\u201d he said. <\/p>\n
As for Alibaba, he has a pretty good idea of the path forward for the company he views as an early Amazon.com
\n AMZN,
\n +1.85%<\/bg-quote>.<\/span>
\n He says Alibaba\u2019s cloud business is at the spot that Amazon Web Services was in 2016 in terms of revenues and low margins. <\/p>\n\u201cI can assure you when this stock is over $200, everyone, all the pessimists who said it was not investible at $80 are going to be saying, \u2018This is the future, a billion people [in China], the cloud is just getting started,’\u201d said Hayes.<\/p>\n<\/p><\/div>\n
Read the full article here<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"Corrects value in paragraph 12 to \u201ca couple of hundred billion dollars\u201d. Quarterly U.S. regulatory filings this week revealed that Scion Asset Management, the hedge fund founded by Michael Burry, doubled down on China stock bets. The question is, should investors? Burry\u2019s investment moves are widely followed as he correctly called the collapse of the […]<\/p>\n","protected":false},"author":1,"featured_media":10247,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"gallery","meta":{"footnotes":""},"categories":[241],"tags":[83],"class_list":["post-10246","post","type-post","status-publish","format-gallery","has-post-thumbnail","hentry","category-markets","tag-featured","post_format-post-format-gallery"],"yoast_head":"\n
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