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Michael Burry's bold bet: Doubling down on China amid market skepticism


Michael Burry doubling down on China market

Michael Burry, recognized as a strategic speculator and famously depicted by Christian Bale in a lead role in the movie 'The Big Short,' has notably entered the select group of investors who are venturing into the Chinese market.


This move is significant as it marks a diversification of his investment portfolio, which is often known for its unconventional and contrarian strategies.


Recently, two major Chinese corporations, Alibaba and JD.com, operating in the e-commerce and technology sectors, have emerged as the principal investments of Scion Asset Management, the fund managed by Burry.


The fund's decision to amplify its stakes in these companies by an impressive 50% is a bold move, particularly in light of the prevailing pessimism surrounding the Chinese market. This investment strategy indicates a strong belief in the long-term potential of these companies, despite the current market uncertainties.



Furthermore, Scion Asset Management's closure of all its bearish positions in the fourth quarter of 2023 signals a significant shift in the fund's strategy. This move, which included exiting positions in sectors such as technology, healthcare, and finance, was received with satisfaction by critics of Burry's investment approach.


The fund, known for its aggressive and often controversial strategies, had notably suffered from its short positions in semiconductor stocks, reflecting the challenges and risks associated with short selling.


Alibaba's ascendancy to become Scion's largest holding, as revealed in the 13F filings with the SEC, underscores the fund's growing confidence and emphasis on the Chinese market.


Scion's investment in Alibaba, amounting to approximately $5.81 million, is a testament to the fund's bullish outlook on the company. Meanwhile, JD.com Inc., albeit a slightly smaller competitor to Alibaba, stands as Scion's second-largest investment, valued at $5.79 million.



The decision to increase the stake in JD.com by 75,000 shares indicates a strategic enhancement of Scion's position in this company. However, the contrasting performance of JD.com and Alibaba since the beginning of the year, with JD.com experiencing a significant decline and Alibaba only a marginal increase, highlights the risks and volatility inherent in the stock market.


Despite these challenges, Burry's consistent selection of undervalued stocks, perceived as unfavorable by the majority, reflects his unique investment philosophy of identifying and capitalizing on the hidden risk premium in such assets. This approach, though often criticized, illustrates Burry's deep analysis and conviction in his investment choices.


Burry's history with Alibaba and JD.com extends beyond the recent investments. His initial foray into these stocks occurred at the end of 2022 when he acquired ADRs of both companies, traded on the New York Stock Exchange.


This move was based on the anticipation that China would swiftly recover from its pandemic-induced economic downturn and rejuvenate its economy, a prediction that did not fully materialize. Scion's decision to close its positions in the second quarter of 2023, only to reopen them a few months later, reflects the fund's dynamic and responsive investment strategy.



This strategy aligns with the broader trends in foreign investment in Chinese stocks, which have seen a dramatic decline to levels not witnessed since the mid-1990s. The substantial erosion of market value from Chinese and Hong Kong stocks since their 2021 peak further illustrates the high levels of volatility and uncertainty in these markets.


The recent uptick in the Chinese stock market, following regulatory interventions to prohibit short-selling and speculative activities, marks a critical juncture.



However, the skepticism among foreign investors towards the Chinese government's strategy is evident, as they continue to divest from Chinese stocks since the onset of the new year.


In stark contrast to Burry's approach, these investors have collectively sold approximately $2 billion worth of stocks in January alone. The sustained increase in sales over the past six months, as reported by Bloomberg, signals a growing apprehension among global investors regarding the stability and future prospects of the Chinese stock market.


24.02.2024



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