Michael Burry Increases Stakes in Alibaba and JD.com Amid Chinese Stocks Slump
In a bold move that has caught the attention of investors worldwide, Michael Burry, the famed investor known for his lucrative bet against the subprime mortgage market as depicted in "The Big Short," has significantly increased his investment in Chinese e-commerce giants Alibaba and JD.com. This decision has reignited the debate over whether these beaten-down stocks represent a significant investment opportunity or if they are merely value traps in a challenging economic environment.
Burry's investment firm, Scion Asset Management, disclosed a substantial increase in its holdings of Alibaba and JD.com in its latest quarterly filing with the Securities and Exchange Commission. Specifically, the firm upped its stake in Alibaba by 50%, bringing its total share count to 75,000, and increased its holdings in JD.com by 60%, amounting to 200,000 shares. These moves have positioned Alibaba and JD.com as the two largest holdings in Scion's portfolio by market value as of the end of the previous year.
Alibaba and JD.com: A Look at the Numbers
Over the past year, shares of Alibaba have plummeted by nearly 30%, with the company's market value eroding by more than 75% from its late 2020 peak. Similarly, JD.com has witnessed a sharp decline, with its shares down more than 50% in the past 12 months and losing upwards of 75% since early 2021. The downturn in these stocks is emblematic of the broader struggles faced by Chinese tech firms, which have been hammered by a combination of regulatory crackdowns and the economic fallout from stringent COVID-19 lockdown measures.
The Case for Investing in Alibaba and JD.com
Despite the precipitous decline in their share prices, some investors and analysts argue that Alibaba and JD.com are now at historically low valuations, making them potentially attractive investment opportunities. These companies are core players in China's e-commerce and cloud computing sectors, with substantial exposure to the Chinese economy and consumer spending.
However, the ongoing economic slump in China, intensified by regulatory pressures and fierce competition from rivals such as Pinduoduo, has left investors questioning the potential for recovery. The debate hinges on whether Alibaba and JD.com can overcome these headwinds and emerge as lucrative investments or if they will continue to languish as value traps.
Michael Burry's Bold Bet
Michael Burry's latest move signals a vote of confidence in the inherent value of Alibaba and JD.com despite the challenges they face. Known for his contrarian investment style, Burry has a history of making high-stakes bets that pay off handsomely, as evidenced by his successful wager against the US housing bubble. However, his strategy requires patience and a high tolerance for risk, as was the case with his bet against the subprime mortgage market.
Investors contemplating following Burry's lead into Alibaba and JD.com should consider their own risk appetite and investment horizon. While Burry's track record is impressive, the recovery of Chinese tech stocks remains uncertain, necessitating a cautious approach to investing in these companies amidst ongoing economic and regulatory uncertainty.
Analyst comment
Neutral news.
As an analyst, it is expected that Burry’s increased stakes in Alibaba and JD.com will generate increased interest and investment in these stocks. However, the market’s overall response will largely depend on how these companies navigate the challenges they currently face, such as regulatory crackdowns and intense competition. The recovery of Chinese tech stocks remains uncertain, so investors should approach investing in these companies cautiously.
