While many advisors and investors remain on the sidelines, major hedge funds increased China holdings in Q1. It’s a strong signal for the potential in China exposures in a year of global economic challenge, and advisors should take notice.
Scion Asset Management, founded by Michael Burry, increased Q1 holdings significantly in U.S.-listed Chinese companies, reported MarketWatch. Burry became famous for correctly predicting the 2008 financial crisis and is the focus of “The Big Short.”
13F filings for Q1 disclosed a full 10% of the U.S.-listed portion of Scion’s portfolio in JD.com and another 9.6% in Alibaba. Scion also increased holdings in both companies in Q4 last year, which could be a trend to watch. 13F filings do not indicate current positions, but they can flag emerging trends of major investors.
Hedge Funds Buy Into China in Q1
Third Point and Hillhouse Capital Advisors (filed as HHLR Advisors) are two hedge funds that also increased Chinese exposures. Third Point bought into Alibaba, while Hillhouse added more exposure to Alibaba, Pinduoduo, and other Chinese companies.
The moves echo the sentiment of Great Hill Capital hedge fund’s chairman Thomas Hayes, who invested in Alibaba over a year ago. This year is “an opportunity to buy and an opportunity to hold,” Hayes explained to MarketWatch. “I think we’re in the final stages of the shakeout that’s been going on for the last year.”
Alibaba is of particular appeal to Hayes because of its unparalleled scale. China’s public cloud is forecast to nearly triple to $90 billion by 2025, according to a McKinsey report in 2022. Alibaba’s board just approved the Cloud Intelligence Unit spinoff, and the company has several IPOs in the works.
Another attractive quality is the large discount at which Alibaba shares currently trade, compared to the company’s intrinsic value. This reality plagues many Chinese companies, creating strong opportunity for investors.
Investing Opportunity in China’s Giants With KraneShares
Alibaba is a major holding in a number of KraneShares ETFs for advisors looking to buy and hold in China.
The KraneShares CSI China Internet ETF (KWEB ) tracks the CSI Overseas China Internet Index. The fund measures the performance of publicly traded companies outside of mainland China that operate within China’s internet and internet-related sectors.
Alibaba is held at a 8.94% weight, and the fund has an expense ratio of 0.70%.
The KraneShares MSCI All China Index ETF (KALL ) tracks the MSCI China All Shares Index and holds Alibaba at a 5.37% weight. It’s a benchmark of companies that are based and headquartered in China as well as listed in the Mainland China, Hong Kong, and the U.S. KALL is broadly diversified across the Chinese equity market.
The fund has an expense ratio of 0.48% with a fee waiver that expires on August 1, 2023.
The KraneShares Emerging Markets Consumer Technology Index ETF (KEMQ ) targets consumer technology within emerging markets. Alibaba is a 3.5% weight, as of May 17, 2023.
KEMQ is structured to ensure diversification because of its limitation on country inclusion. One country can only account for 40% of the fund, with a maximum holding weight of 3.5%.
The fund focuses on internet retail and e-commerce growth in 26 emerging market countries, including China. KEMQ has an expense ratio of 0.59% with a fee waiver that expires on August 1, 2023.
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