David Tepper’s ‘Everything’ China trade has a new plot

Shuli Ren, Bloomberg

The investing world has something new to think about this year: What to do when it’s becoming clear that China is pumping out products that consumers in the West covet?

Billionaire investor David Tepper has certainly made up his mind. He doubled down on his bet on Chinese stocks last quarter, adding positions in e-commerce platforms Alibaba Group Holding Ltd. and JD.com Inc., as well as index funds that track some of the country’s biggest companies.

The conviction of the president and founder of Appaloosa Management LP has been well-rewarded. The Hang Seng Tech Index has soared 16% so far this year, taking US President Donald Trump’s tariff threats in stride. It’s also a vindication for the high-profile hedge fund manager, who advocated last September to buy “everything” related to China, after Beijing vowed to roll out fiscal spending. Unfortunately, a stimulus-fueled rally evaporated by the end of 2024 as the government failed to bring out the “big guns” that Tepper had anticipated.

This time around, though, a new investment thesis is emerging, crystalized over the Lunar New Year break. DeepSeek, a little-known Chinese upstart, shook the world with an artificial intelligence model almost as powerful as OpenAI, built on a small budget and despite US government export controls on chips to China.

In a Feb. 5 Deutsche Bank report, analyst Peter Milliken argued that China’s Sputnik moment had arrived, and that as the country outcompetes the rest of the world, investors will eventually want to pay for its dominance.

“The West has to grapple with a potential extinction event for many of its companies and investors, so will need to reposition their holdings to reflect this,” noted the Deutsche report.

The disagreement arises, however, about how to reposition. Some asset managers see it largely as a short-selling opportunity. They are still apprehensive of dipping their toes back into Chinese assets after the government’s harsh regulatory crackdown during the pandemic. For instance, those who bet against discount stores in the US, such as Dollar General Corp. and Dollar Tree Inc., would have come out handsomely, as PDD Holdings Inc.’s Temu attracted American shoppers willing to trade longer shipping times for rock-bottom prices.

But for others, it’s a screaming buy. Comparing China’s CSI 300 Index to the Nasdaq Composite, Deutsche noted that while American companies’ return-on-equity is double their Chinese counterparts, investors are paying four times as much in book value. Once the investing world wakes up and pivots sharply back to China, this valuation discount will disappear, the bank reasoned.

China elicits a lot of feelings. In the last five years, the investing world has undergone, by my observation, at least four emotional stages. Grief came first when Beijing launched its big-tech crackdown in late 2020, killing hedge funds’ golden goose. Anger followed, with some arguing China was not investable. As Beijing’s pandemic lockdowns dragged into an economic long Covid, acceptance took shape. Global investors sold their Chinese holdings at a loss and closed their books. Last year, a shimmer of hope started to surface, as exporters flexed their muscles and young brands from Miniso to Pop Mart International Group Ltd. entered the world stage.

Is it possible that this year we will have fear — of China Inc. disrupting global businesses, and of missing out on the country’s cheap stocks? If you happen to believe in products that offer value-for-money, you might just be in Tepper’s camp.

[Abridged]

Courtesy Bloomberg/Shuli Ren