(Bloomberg) -- Michael Burry, the hedge fund manager famous for his 2008 bet against the US housing market, further increased his exposures in China stocks including Alibaba Group Holdings Ltd. in the third quarter as Beijing rolled out a stimulus blitz, but also added new bearish options that would provide downside protection.
Scion Asset Management, Burry’s investment firm, boosted its holdings of Alibaba by almost 30% to 200,000 shares during the quarter. At the same time, Scion bought put options with the notional value equivalent to 84% of its Alibaba holdings, according to a 13F regulatory filing on Thursday. The put options allow Scion to sell the stocks to lock in a profit or limit losses, should Alibaba tumble.
Burry’s firm used the same tactics for two other Chinese investments, Baidu Inc. and JD.com Inc., in a sign of caution for his China holdings.
The reshuffles came as Beijing ramped up efforts to revive growth with pledges to support fiscal spending and the country’s troubled real estate market in September. The surprise stimulus plan unleashed a frantic rally in China equities but some market observers remain cautious about the long-term outlook for the sector.
For JD.com Inc., Scion doubled its stakes in the three months through September while adding bearish wagers against the stock positions, the filing shows. In Baidu. Inc., the firm increased its position by two-thirds but also hedged its exposure.
The three Chinese stocks including Alibaba were worth $54 million at the end of September, representing about 65% of Burry’s total equity holdings, data show.
Burry has been one of the few prominent China stock bulls among hedge fund investors, along with Appaloosa Management’s David Tepper, even before Beijing’s major policy shift in September. In the first quarter, he loaded up on Chinese stocks and more than doubled his stake in Alibaba, then further increased that position in the second quarter to make it the firm’s top holding as of June 30.
Read: Michael Burry Raises Alibaba Stake, Cuts Stock Portfolio in Half
Since Beijing’s stimulus efforts in late September, the country’s equity benchmark CSI 300 Index surged 32% over two weeks, while Nasdaq Golden Dragon Index’s US-listed China stocks gained about 37%.
The rally has since peeled back. Alibaba, JD.com and Baidu all have lost more than 20% since peaking in early October, retreating to levels when Beijing announced stimulus in late September.
A cohort of Wall street strategists and fund managers remain cautious about China’s long-term outlook given its growth slowdown and sagging consumption trends. Donald Trump winning the White House again has also triggered concerns around higher US tariffs and thorny geopolitical issues.
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--With assistance from Matt Turner.
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