"Smart money" bets on China becoming a trend: Q3 "big short" prototypes increase holdings in Alibaba and other Chinese concepts, fund rising star Keystone builds positions in three major ETFs

The recently released position report shows that in the third quarter of this year, overseas "smart money" betting on Chinese stocks seems to have become a trend, including Michael Burry, the fund manager known for shorting during the 2008 U.S. subprime mortgage crisis and for the movie "The Big Short."

On Thursday, November 14, Eastern Time, Michael Burry's hedge fund Scion Asset Management LLC released its 13F position report, indicating that the fund continued to increase its holdings in Alibaba and Baidu in the third quarter, and also added to its position in JD.com, which it had previously significantly reduced. However, he simultaneously allocated corresponding put options to cautiously hedge related risks.

According to the public 13F document submitted by Scion to the U.S. Securities and Exchange Commission (SEC):

• Scion increased its holdings in Alibaba's U.S. ADR by 45,000 shares to nearly 200,000 shares, while holding corresponding put options for 168,900 ADRs, with a nominal value of the put options equivalent to 84% of its Alibaba holdings;
• The position in JD.com doubled during the quarter, increasing its JD.com ADR holdings by 250,000 shares to 500,000 shares, while holding corresponding put options for 500,000 ADRs;
• The fund increased its holdings in Baidu by 50,000 shares to 125,000 shares, while holding corresponding put options for 83,300 ADRs.

Public data shows that as of the end of September, Scion held $54 million worth of the aforementioned three Chinese concept stocks, accounting for about 65% of the fund's total stock holdings, up from about 46% at the end of June. This means that the proportion increased by 41% within three months.

Although it is unclear when Burry's Scion started acquiring these Chinese concept stocks, as previously mentioned by Wall Street Insight, based on the stock performance in October, the "big short" made a profit.

Since the Central Political Bureau meeting at the end of September signaled significant fiscal and monetary support, the CSI 300 index has risen 32% over two weeks, while the Nasdaq Golden Dragon Index, which tracks U.S.-listed Chinese concept stocks, surged about 37%. However, Chinese concept stocks have since retreated, with the stock prices of Alibaba, JD.com, and Baidu falling over 20% since peaking in early October, returning to the levels seen at the end of September, mainly due to an expanded decline after entering November.

Also released on Thursday, the 13F documents show that in the third quarter, the emerging hedge fund Keystone Investors Pte, based in Singapore, significantly increased its interest in U.S.-listed Chinese concept stocks and ETFs.

In the third quarter, Keystone established new positions in three major Chinese concept stock ETFs, including 1,570 shares of iShares China Large-Cap ETF (FXI), 6,090 shares of KraneShares CSI China Internet ETF (KWEB), and 225,000 shares of Deutsche Bank X-trackers Harvest CSI 300 China A-Shares Fund ETF (ASHR).

At the same time, in the third quarter, Keystone also built long positions in Alibaba, Tiger Brokers, Li Auto, Huazhu, Yum China, increased holdings in Pinduoduo, Trip.com, TSMC, liquidated its position in TAL Education, and reduced its holdings in New OrientalThe Shanghai Securities Journal reported that since September 24, a series of incremental policies have been intensively introduced in China and are gradually showing effects. While improving the momentum of China's economic growth, these policies have also promoted the release of vitality in the A-share market. Recently, many foreign institutions have expressed optimistic expectations for China's economic growth and have raised their ratings for Chinese assets.

On Wednesday, Nomura's Chief China Economist, Lu Ting, raised his forecast for China's GDP growth in the fourth quarter and for the entire year. Previously, UBS and JP Morgan had also raised their expectations for China's economic growth this year. The Chief Strategist of Swiss asset management firm Pictet, Lu Bo Le, upgraded the rating of Chinese stocks from "neutral" to "overweight," citing a strong economic outlook