David Tepper Scoops Up Alibaba as Hedge Funds Hunt for Bargains in China

Ye Xie and Jacob Gu, Bloomberg News

, Bloomberg

(Bloomberg) -- Billionaire investor David Tepper loaded up on beaten-down Chinese stocks last quarter while reducing stakes in high-flying US tech firms, leading hedge fund managers who are slowly warming up to China amid a record gap in valuations between the two markets.

Tepper’s Appaloosa Management more than doubled its investment in Alibaba Group Holdings in the first three months of the year, making the Chinese e-commerce giant the biggest position in its $6.7 billion equity portfolio, according to a regulatory filing. The fund also raised its stakes in PDD Holdings and Baidu Inc., while adding JD.com and two Chinese exchange-traded funds as new buys during the quarter.

As Tepper built up positions in Chinese stocks, he trimmed holdings in so-called Magnificent Seven stocks, including Amazon.com, Microsoft Corp., Meta Platforms Inc. and Nvidia Corp. The result: Chinese shares and ETFs accounted for 24% of the fund’s equity portfolio as of the end of the quarter.

Tepper is among global investors who are cautiously returning to Chinese stocks after a meltdown earlier this year sent their valuations to a record discount relative to their US peers. As a group, hedge funds lifted their holdings in Alibaba, PDD and Baidu during the quarter, while scaling back on companies including JD.com and two electronic vehicle makers — Nio Inc. and Li Auto, according to the quarterly filing data.

Their purchases were well-timed. The MSCI China Index has surged almost 30% since its January low, as state-backed funds stepped in to support the market and Beijing’s economic stimulus started to gain traction.

Even after the rebound, the China benchmark is still trading at less than half of the valuation of the S&P 500 Index, which notched a fresh record this week. As of mid-April, hedge funds’ net allocations in China increased only slightly above their lowest levels in five years, according to Goldman Sachs Group Inc.

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Among bargain hunters in China, few hedge fund managers were more aggressive than Tepper. His investment in Alibaba was worth more than $800 million at the end of March, or 12% of his stock holdings, making him among the largest investors in the company. Appaloosa was also among the largest hedge fund investors in the $5.2 billion iShares China Large-cap ETF (FXI) and $6.4 billion KraneShares CSI China Internet Fund (KWEB).

Tepper didn’t immediately respond to an e-mail by Bloomberg News seeking comment.

Chinese tech giants reported mixed earnings this week. While JD.com posted better-than-anticipated revenue increases and Tencent Holdings Ltd.’s net income surged, Alibaba and Baidu reported lackluster results.

Tepper, who founded Appaloosa Management in 1993, is worth about $20 billion, according to the Bloomberg Billionaires Index.

--With assistance from Amy Li and Amanda Cantrell.