Michael Burry has made quite the name for himself in the investing world thanks to his legendary call prior to the Great Recession that the housing market would collapse. Burry proceeded to buy credit default swaps on mortgage bonds right before the Great Recession and made a killing when the housing bubble did eventually pop.
Today, Burry is still investing at his firm, Scion Asset Management, which owned just nine stocks at the end of 2022. Two of them are Chinese stocks. Should you consider investing in them? Let's take a look.
Alibaba
Of Scion's roughly $46.5 million portfolio, the large Chinese e-commerce platform Alibaba (BABA 0.14%) makes up about $4.4 million, or roughly 9.46%, of the total portfolio. In the fourth quarter of 2022, Scion increased its position in Alibaba by about 50,000 shares.
Alibaba's platform enables consumers and businesses to complete online transactions with various merchants, similar to what Amazon does. However, it's in a vastly larger market in China, which presents a huge growth opportunity with the country's massive population. Alibaba is getting into other businesses as well, including cloud computing, gaming, and other media and entertainment businesses.
The company has demonstrated outstanding growth, topping more than 1 billion Chinese users last year and 1.3 billion globally. While the company's losses did widen in 2022, that was really because the Chinese economy slowed as the government imposed pandemic-related lockdowns across many cities, which really took a bite out of the economy.
This year, many analysts expect the Chinese economy to perform better than the U.S. because of the reopening and the Chinese government's efforts to boost economic growth. Alibaba is one of the largest Chinese stocks with a $265 billion market capitalization, so a bet on this company is partially a bet on the Chinese economy as well.
With the stock up about 9% this year, Burry looks to have added at a good time and I'd expect Alibaba to be a long-term winner in the sector.
JD.com
Roughly 9% of Scion's portfolio is invested in another Chinese e-commerce giant, JD.com (JD -0.55%). Scion added 75,000 shares of the stock in the fourth quarter.
JD.com is a platform Chinese consumers can use to purchase a wide range of products, such as electronics, food, apparel, and much more. The company has more than 588 million users. It also has a strong logistics department, which helps small and medium-sized businesses with warehousing, cross-border shipping, and crowdsourcing.
JD.com is also quite advanced from a technological perspective, having been the first company in the world to do commercial deliveries with drones and invest heavily in artificial intelligence and machine learning.
The company has struggled as consumer spending and economic growth faltered. But it still managed to grow revenue 11% year over year in the third quarter of 2022 and generate close to $26 billion of free cash flow for the 12 months ending Sept. 30 of last year.
JD.com's logistics business, which now runs more than 1,500 warehouses and over 30 million square meters of space, makes me increasingly bullish on the stock. Last year, the company launched its own cargo transportation unit, JD Logistics Airlines, which management expects to boost the company's supply chain capabilities and increase efficiency.
