Betting Against the Market: Which Stocks Is the Investor from *The Big Short* Buying in Hong Kong?

While hedge funds are buying market leaders and selling underperforming stocks, Michael Burry is looking for opportunities among the stocks that ended up on the losing side of this trade. The investor, known for betting against the U.S. mortgage market before the 2008 crisis, believes now is a good time to buy undervalued stocks in Hong Kong. Burrie detailed which specific stocks he is adding to his portfolio in a July 23 post on his Substack blog, Cassandra Unchained.

Burry writes that momentum trading, which is popular among hedge funds, has pushed the gap between outperforming and underperforming stocks to extreme levels. Under this strategy, funds buy stocks with the strongest momentum while simultaneously taking short positions in stocks with the weakest momentum. It is used particularly widely by multi-strategy funds, which in recent years have attracted a significant portion of the capital flowing into alternative investments.

Burry, on the other hand, looks for high-quality companies whose stocks, due to weak performance, have ended up among the underperformers in this strategy and have fallen in price.

The investor reported that he had increased his stake in the Chinese technology company Meituan at HK$87.60 per share. He also increased his position in shares of tech giant Tencent at HK$448.60 per share. Burry considers Tencent to be one of the most successful companies in history in terms of long-term capital reinvestment.

Burry still considers the Hong Kong market attractive for buying. In late May, he wrote that the share prices of major Chinese companies had once again fallen to near their lows due to pressure on the Hong Kong market—and amid this sell-off, Burry bought more Chinese stocks that had fallen in price. At that time, he reported that, in addition to Tencent and Meituan, he held shares in the Haidilao restaurant chain and the home appliance manufacturer Haier Smart Home, as well as ADSs of the retailers Alibaba and JD, purchased in New York.

Burry attributes the sell-off in Hong Kong to a capital outflow to Japan and South Korea, where investors are betting on the semiconductor sector. Asian equity funds are also reducing their exposure to China, causing shares of major Chinese companies to once again approach their lows.

In addition, Burry writes about the risk of circular financing in the AI industry. Model developers, hyperscalers, and chip manufacturers invest in one another while simultaneously entering into long-term contracts for equipment and computing power.

Citing the Bank for International Settlements’ annual report, the investor asserts that the majority of the industry’s future expenses and revenues are tied to these mutual commitments. For chip manufacturers, this may account for nearly all of the revenue projected under their announced multi-year commitments, while for AI labs and hyperscalers, it accounts for about two-thirds of their expenses and revenues.

In his view, these agreements account for a significant portion of Nvidia’s stated $1 trillion in “revenue visibility.” Nvidia has previously refuted such allegations, pointing out that its investments in customers accounted for only a small portion of revenue already recognized. Burry draws attention to the word “already”: BMR’s data primarily refers to future revenue embedded in long-term commitments.

Burry issues a warning to BMR: disappointment with the prospects for AI could lead to a revaluation of corporate debt. In his view, this risk is exacerbated by the scale of circular financing, to which a significant portion of AI companies’ future expenses and revenues is tied.

This article was AI-translated and verified by a human editor