Hedge Funds Boost Alibaba Stake Amid Recovery in Chinese Tech Stocks

The recently released 13Fs show that many hedge funds have increased their stake in Alibaba and other Chinese tech stocks. The move comes amid the slight recovery in this beaten-down asset class which fell out with several foreign investors, especially in the US.

Billionaire investor David Tepper’s hedge fund Appaloosa Management, Saudi Arabia’s Public Investment Fund (PIF), and Michael Burry’s Scion Asset Management are some of the funds that increased their stake in Alibaba in Q1.

Alibaba is now the biggest holding for Appaloosa Management. Tepper also increased his fund’s stake in PDD Holdings and Baidu and along with Alibaba they make for three of the top 10 holdings.

Michael Burry Increased Stake in Alibaba

Burry of The Big Short fame also increased his stake in Chinese stocks. Its top holding at the end of Q1 was JD.com followed by Alibaba where the fund held around $9 million worth of shares. In 2023, Burry had sold all the Chinese shares that he was holding but now seems to be warming up again.

Similarly, PIF which is Saudi Arabia’s sovereign wealth fund increased its stake in Alibaba by 11% in Q1 making it among the biggest additions to the cash-rich fund in the quarter. Notably, PIF and its affiliates have been buying stakes in several overseas companies. The fund holds a stake in leading US companies like Uber and is the biggest shareholder of electric vehicle startup Lucid Motors.

Alibaba Stock Soared After 13F Filings

Alibaba stock soared yesterday after 13F filings showed multiple hedge funds piled up stakes in the Chinese tech giants. The stock had fallen a day before after Alibaba released its earnings for the March quarter which showed a sharp dip in profits.

Its revenues rose 7% YoY to $30.7 billion and were ahead of analyst estimates. Its operating income fell 3% over the period to $2.04 billion while the net income plunged 96% to $127 million. The key driver of the steep fall in profitability was the loss from its investments in publicly traded companies.

BABA’s Profits Plunged in Fiscal Q4

Looking at Alibaba’s different business segments, Taobao and Tmall Group reported a 4% YoY rise in revenues. The company has revamped the strategy of its Cloud Intelligence Group and said it is “focusing on high quality revenues from increasing public cloud adoption while reducing low-margin project-based contracts.”

The segment’s AI-related revenues grew in triple digits in the quarter. In its release, Alibaba said, “We expect the strong revenue growth in public cloud and AI-related products will offset the impact of the roll-off of project-based revenues.”

In March, the Chinese tech giant announced a business restructuring and said that it would become a holding company while splitting into the following six business units – all of which have the ability to consider capital raising and separate listings.

However, the plans have since been on the backburner. Last year, Alibaba scrapped plans to list the cloud business “in light of uncertainties created by recent U.S. export restrictions on advanced computing chips.”

In March, Cainiao also withdrew its IPO offering in Hong Kong Stock “in order to align its business to better realize strategic synergies with our e-commerce businesses.”

Chinese Tech Stocks

Many US investors shunned Chinese tech stocks in 2021 after the country’s brutal tech crackdown. While the country has since sounded a more reconciliatory tone towards large tech companies, for many investors Chinese tech stocks are now uninvestable considering the policy uncertainty.

Rising tensions between the US and China are not helping matters either and earlier this week, US President Joe Biden increased tariffs on several Chinese goods. His predecessor Donald Trump had anyways imposed massive tariffs on most imports from China.

It’s been almost a decade since Alibaba went public and the stock is only marginally higher than the IPO price of $68. Last year, it briefly fell below the IPO price amid the sell-off in Chinese stocks. Apart from the business restructuring and leadership overhale, Alibaba has taken several steps to revive its sagging fortunes. It has scaled up buybacks and initiated a dividend to attract investors.

These measures seem to be attracting some hedge funds towards this beaten-down Chinese tech stock as is evident in the Q1 13F filings.