Close
Wallstreetbets ARK Invest Crackdown Chinese Stocks

Wallstreetbets takes a fancy to Chinese stocks against all odds

Rebbeca Ren

posted on September 16, 2021 10:00 amEditor : Wang Boyuan

China's continued crackdown ranging from technology to private tutoring has wiped out around $1.5 trillion of market cap from these companies as of August 23. Even though they have bounced back a little bit recently, many Chinese investors have cut losses, saying they will stay away from these stocks until favorable policies are introduced.

While Chinese investors are upset about the seemingly endless and unpredictable crackdown, Reddit's r/WallStreetBets forum investors are raising their bets on US-listed Chinese tech firms, especially Alibaba.

Since hitting a record high of $319 per share in October last year, Alibaba's current share price has almost been halved, standing at $167. The setback in market cap has caught the attention of WSB investors who have always been big fans of "buy the dip."

Data from wsbtracker.com
Data from wsbtracker.com

In recent weeks, the Chinese e-commerce giant emerged as one of the most-discussed stocks on the forum. Many Redditors believe that its stock price has been severely undervalued, and now is the time to buy in.

"...China has the same political-economical interest to grow...companies like BABA are essential. Look at the bigger picture, the stock won't fail, it will raise, slowly when China wants it to go up..." Reddit user Lavi1012 said.

"People fail to understand that China is inseparable from the world, it is not excluded nor it is seeking to be, how can you be afraid of risks when everything is literally manufactured in China?" another Redditor commented.

Citing Hayden Capital's monthly letter to investors, a Redditor said, "... it's easy to see that these recent actions are about fixing China's internal problems, rather than purposefully trying to harm foreign investors...The country is trying to steer capital towards the fueling the right areas, where it views it's most needed for advancement and betterment of the country". The post, which covers China's opening up in the 1980s to the latest five-year plan, won 100% upvoted.

And they have endorsed their viewpoints by taking actual actions. According to Vanda Research, retail investors have been flocking into US-listed Chinese stocks in the penultimate week of August, hitting the highest weekly purchases in five years. Alibaba was the most purchased single stock in the US on August 23.

Vanda noted that Chinese ADR purchases soared last Friday, and buying momentum continued through Tuesday, driving stocks including JD.com and video sharing site Bilibili sharply higher. 

As the crackdown slows down, institutional investors who were previously pessimistic are also regaining confidence. Well-known Ark Invest is buying back Tencent, JD.com, and Pinduoduo.

In the past few months, Ark has been selling these Chinese tech stocks. Cathie Wood, founder and CEO of Ark, told in a monthly webinar with investors on July 13 that she thought there was a valuation reset of Chinese tech firms. "From a valuation point of view, these stocks have come down and again from a valuation point of view, probably will remain down," said the popular investor.

William Blair Investment Management, which manages more than $73 billion of assets, launched a new Chinese growth mutual fund on August 25, showing that they are still optimistic about this market.

In an interview with Bloomberg on September 8, Ray Dalio, founder of the hedge fund Bridgewater Associates, said that opportunities in China couldn't be neglected. The billionaire investor, who has been bullish in the region for some time, said in July that Beijing's crackdown on the tech sector was misinterpreted by Western investors and added that both US and Chinese stocks should be included in one's portfolio.

China is stepping up its efforts to ease the concerns of foreign investors caused by regulatory crackdowns. The People's Daily newspaper released an editorial on Wednesday, saying, "opening to the outside world is China's basic national policy, and it will not waver at any time."

Last Monday, the country's top securities regulator told China to further open its capital markets to foreign investors and pursue pragmatic cross-border cooperation to regulate overseas-listed Chinese companies.

Still, investing in China can be risky. Uncertainties in policies and crackdowns, distinct operating rules from other major markets, less opaqueness in information, etc., may scare away foreign investors with less knowledge of the communist-led country.