Wall Street tycoon David Tepper: Strongly betting on Chinese stocks, buying everything, not fond of US stocks

Billionaire hedge fund founder David Tepper said on Thursday that after the Fed's rate cut, his next big bet is to buy all China-related stocks, saying he may double the investment limit on Chinese stocks. He also said he expects the Fed to cut rates two to three more times, and that the Fed's rate cuts in a strong economy make him nervous, although he doesn't like U.S. stocks, he won't short them.

"Chinese Stocks Are Cheap, Investment Limits May Double"

Tepper said in an interview with CNBC on Thursday,

"I think the Fed's actions last week will lead to China easing monetary policy, but I didn't expect the magnitude of their policy to be so great. I think this is a comprehensive change, so we hold more Chinese stocks."

"We have increased our holdings of some Chinese stocks. I may have said in the past that I would not exceed a 10% or 15% holding limit, but that may no longer be true."

Tepper further stated that he may double the investment limit on Chinese stocks. He said that after the Fed cut rates earlier this month, he bought more "large tech stocks" such as Alibaba and Baidu.

"I basically bought all the stocks, I would be happy to see a price pullback, and when it does, I may set a new investment limit."

This month, Tepper has become optimistic about the Chinese market, following the announcement of rate cuts and other measures to support the real estate market by the People's Bank of China.

Influenced by Tepper's remarks, the iShares China Large-Cap ETF (FXI) surged 8.6% at the opening on Thursday, continuing the upward trend of Chinese and Hong Kong stocks.

Tepper also pointed out that stocks in the Chinese market are cheaper than U.S. stocks.

"You will see that the P/E ratios of these large-cap stocks are single digits, while the growth rates are double digits, contrasting with the S&P 500's P/E ratio of over 20 times."

As part of the Chinese market, Tepper said he would buy shares of Wynn Resorts and Las Vegas Sands Corporation. As a result, these two casino stocks rose by over 6% and 7% respectively.

According to a previous article by Wall Street News, based on 13F filings, Tepper reduced his holdings in Alibaba and U.S. tech giants, but Alibaba remains his largest holding, accounting for 12% of his $6.2 billion stock portfolio.

Tepper also adjusted his investments in other Chinese companies. He increased his holdings in JD.com Inc., KE Holdings Inc., and two Chinese exchange-traded funds; reduced his holdings in PDD Holdings and Baidu Inc. Overall, Chinese stocks and ETFs account for 26% of his fund's stock portfolioTepper has become one of the famous long investors in Chinese stocks among hedge fund investors. In the first quarter of 2024, he significantly increased his holdings of Chinese stocks, especially Alibaba's shares, which more than doubled. At that time, state-supported funds increased their buying power to support the market, and Tepper took advantage of the market adjustment period to significantly increase his holdings of Chinese stocks.

"Fed must maintain credibility, so it will have to cut interest rates two or three more times"

Tepper also stated that investors should believe that if the Federal Reserve wants to maintain its credibility, when it indicates a rate cut, it should cut rates at least two to three more times.

"You just need to read what these guys are saying, Powell told you something... He told you there's some adjustment, he has to deliver to some extent, he has to act. I'm not smart, I'm just interpreting what they're saying, whether they have conviction. They usually do what they say, especially when they have this level of conviction."

Last week, the Federal Reserve cut its benchmark interest rate by 50 basis points, initiating its first easing policy action in four years. In addition to this rate cut, the Federal Reserve indicated through its "dot plot" that it expects to cut rates by an additional 50 basis points by the end of this year. Federal Reserve Chairman Powell stated that this rate cut was a "adjustment" by the central bank, but did not commit to taking similar actions at every subsequent meeting.

However, Tepper said,

"They have to cut rates by another two to three 25 basis points, otherwise they will lose credibility. They will take some action beyond 50 basis points. You know, another 25 basis points, another 25 basis points, seems to be something they have to do."

"I don't like the U.S. market, but I won't short it either"

Nevertheless, Tepper stated that the macro background of the Federal Reserve easing monetary policy in a relatively stable economic situation makes him nervous, similar to the situation in the 1990s. Last week's significant rate cut occurred when most economic indicators appeared quite stable.

"That was around the 90s, the Federal Reserve cut rates in a good economic environment, and the result was that the economy was very strong in 1997, and then the rate cut made the market more prosperous, leading to a bubble frenzy in 1999 and early 2000. So I don't like this situation, I prefer value investing."

However, Tepper said that although the Federal Reserve's actions made him hesitant, he would definitely not short U.S. stocks because loose policies would immediately bring benefits.

"From a value perspective, I don't like the U.S. market, but I definitely won't short it because loose monetary policy is everywhere, and the economy is relatively good. In this situation, not being long will make me very nervous."

According to the 13F filing, Tepper continues to reduce his exposure to U.S. tech companies, including Amazon.com, Microsoft Corp., and Meta Platforms Inc. His holdings in NVIDIA Corporation decreased by 84% to $85 million this quarter, accounting for 1.4% of the portfolio