Smart Money Bets on Chinese Tech: Contrarian Plays in Alibaba, JD.com, and ETF Shifts

The "Big Short" prototype fund has positioned itself as a contrarian investor in the Chinese tech sector, significantly increasing its stakes in Alibaba and JD.com during Q3 2023. Meanwhile, the Keystone Fund’s reported ETF moves—though shrouded in uncertainty—hint at broader institutional confidence in China’s long-term recovery. This article explores the strategic rationale behind these bets and the risks investors must navigate.

The Big Short’s Contrarian Play: Alibaba and JD.com

The Big Short prototype fund raised its Alibaba holdings to 2.38 million shares and initiated a new position of 3.57 million shares in JD.com, signaling a belief in undervalued assets amid regulatory and economic headwinds. These moves align with the fund’s focus on beaten-down Chinese internet stocks, which have faced scrutiny over data privacy, antitrust laws, and slowing consumer demand.

The fund’s managers cited regulatory easing and cash flow resilience as key catalysts. Alibaba, for instance, reported a 14% year-on-year revenue increase in its cloud division in Q2 2023, while JD.com’s logistics network—critical during supply chain disruptions—maintained profitability. Both companies also reduced operational costs, improving margins despite a sluggish retail sector.

Keystone’s Ambiguous ETF Strategy

The Keystone Fund’s reported Q3 2023 moves into three major Chinese concept ETFs (e.g., ASHR, KWEB, FXI) remain unverified in official filings. While Q4 2023 data shows the fund liquidated stakes in these ETFs, the lack of transparency in its Q3 disclosures raises questions about its true intentions.

Analysts speculate that Keystone may have used ETFs to hedge sector-specific risks while testing exposure to China’s broader market. However, the fund’s Q4 sell-off—coupled with reduced positions in Alibaba and Pinduoduo—suggests caution. This ambiguity underscores the challenges in interpreting institutional moves without granular data.

Risks and Rewards: Navigating China’s Tech Landscape

Investors must weigh several factors:
1. Regulatory Tailwinds: China’s push to stabilize its tech sector through lighter antitrust enforcement and subsidies for AI and cloud infrastructure could boost profitability.
2. Economic Recovery: A rebound in consumer spending, driven by stimulus measures, would directly benefit e-commerce giants like JD.com and Alibaba.
3. Global Sentiment: Geopolitical tensions and U.S.-China trade dynamics remain a wildcard, with ETFs like KWEB (focusing on internet stocks) being particularly volatile.

Conclusion

The Big Short’s concentrated bets on Alibaba and JD.com reflect a high-conviction contrarian strategy, backed by fundamentals like cost discipline and regulatory thaw. While Keystone’s Q3 ETF moves remain unclear, its Q4 actions suggest a tactical shift toward selective exposure. For investors, the Chinese tech sector presents asymmetric upside—if the economy recovers and reforms materialize—but demands patience amid near-term uncertainty.

Data supports this cautious optimism: Chinese internet stocks like Alibaba and JD.com trade at 12-15x forward P/E ratios, near decade lows, while MSCI China ETFs (MCHI) yield ~2%, a premium over U.S. tech peers. If Beijing’s growth policies succeed, these valuations could prove compelling—a bet the “smart money” is already making.