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China, banks and the courage to take risks. Burry's new bets on uncertainty

Jason Bellier
16. 5. 2023
4 min read

Bet on uncertainty 2.0. Michael Burry rather shocked with his latest investment, where he revealed the bulk of his portfolio. I probably don't need to say that Burry is once again going against the crowd and looking for opportunities where others don't see them. Let's take a look.

Famous investor Michael Burry, known for predicting the 2008 mortgage crisis, has revealed a substantial portion of his portfolio. It turns out he's bet big on Chinese technology companies and regional banks, which have been in the spotlight in recent weeks.

Burry's firm, Scion Asset Management, revealed in its latest 13F filing with the SEC that it owns shares of Alibaba $BABA+0.0%, Tencent, Baidu $BIDU+0.0% and JD.com $JD+0.0% worth more than $350 million. Alibaba and JD.com represent the two largest positions in the portfolio, with each exceeding $100 million.

BABA

Alibaba

BABA
$76.12 $0.54 +0.71%
Capital Structure
Market Cap
195.5B
Enterpr. Val.
1.3T
Valuation
P/E
14.1
P/S
1.5
Dividends
Yield
0.2%
Payout
0.0%

The bet on Chinese tech firms comes at a time when these companies are in disfavor. Shares of U.S.-listed Chinese firms have weakened significantly since the start of the year. The Nasdaq Golden Dragon China index is down 30%.

The main reasons are fears of a tougher regulatory crackdown on the technology sector by Beijing and tensions between the US and China. Despite the troubles, Burry believes in the potential of Alibaba, JD.com and others, and he has been able to buy stocks at low prices. He hopes that when the markets recover from the recent turmoil, stock prices will rise again.

Burry likes to invest in markets that are out of favor with other investors, often profiting by getting his visions right, but only in the long run.

While his recent move into Chinese technology stocks may bring losses if negative sentiment persists, Burry's long-term investment horizon and ability to spot opportunities where others only see problems suggests his bet on a recovery may be right. Chinese technology companies still have good growth potential, despite the current challenges. If fears dissipate, the stock will rise again - and Michael Burry will profit again.

Betting on uncertainty 2.0 - Regional banks

According to a Form 13F disclosure with the SEC, Burry's firm Scion Asset Management also raised stakes in First Republic Bank $FRC and Pacific Western Bank $PACW+0.0%. The volume of investments in these two banks exceeded $14 million.

Burry's choice of smaller banks is surprising, as it comes at a time when most investors prefer big banks. These banks appear to be more resilient to economic shocks and have better growth prospects. Regional banks are more vulnerable to economic slowdowns and may face competition from larger banks and fintech companies.

Still, Burry believes these banks are undervalued. He hopes that when loan demand recovers and rates come down, profits and shares of regional banks will rise. Despite the risks they face, these banks have good growth potential and the opportunity to create shareholder value.

Burry's investments could take losses if the economic environment worsens. However, his ability to see opportunities that others overlook, and his patience with long-term investments, suggests that his bet on regional banks could be right.

Why is this move very surprising?

The US banking crisis has done a lot of damage, bank failures aside, and it is ordinary people and investors who are becoming sceptical of the sector. And no wonder, the failed Silvergate Bank, Silicon Valley Bank (SVB) and Signature Bank were all venture capitalists, which indirectly broke their necks and devastated public confidence.

Despite banks and the FDIC's best efforts to assure us that further problems are not imminent, the negative mood in the banking sector persists. Experts believe that more bank failures may be imminent and the banking crisis may well resonate for another year before the effects of interest rates and the risk-taking and imprudence of other banks become properly apparent.

  • What do you think of Burry's purchases?

Please note that this is not financial advice. Every investment must undergo a thorough analysis.


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