Michael Burry's $196 million hedge fund, Scion Asset Management, could see hefty gains if the People's Bank of China cuts interest rates in 2025, which it has suggested it is likely to do.
What To Know: Burry has made significant investments in Chinese tech companies Alibaba Group Holding Ltd. (NYSE:BABA), JD.com, Inc. (NASDAQ:JD) and Baidu, Inc. (NASDAQ:BIDU). In fact, those three investments represent nearly half of his fund's portfolio, according to its most recent 13F filing.
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Chinese stocks underperformed the broader market in 2024, but that may change in 2025.
The People's Bank of China recently told the Financial Times that it will likely cut interest rates "at the appropriate time" in 2025. The PBOC also said it would prioritize "the role of interest rate adjustments" and place less emphasis on "quantitative objectives" for loan growth.
If China lowers interest rates, Chinese companies would benefit from improved consumer spending, higher stock valuations and potentially more investment and expansion as money would be cheaper to borrow.
The "Big Short" investor has hedged his China bets, however. He purchased put options on Alibaba. JD.com and Baidu shares in the third quarter, allowing the fund to protect its downside risk while still maintaining exposure to potential upside in Chinese stocks.
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