Bridgewater's Bullish Bet: Unveiling The Chinese Stocks Set To Spark Double-Digit Returns

Bridgewater Associates is the world's largest hedge fund with over $196 billion in assets under management (as of Sept 30, 2023). While the firm posted a loss in fiscal 2023, its flagship fund All Weather was up 10.6% last year. 

Ray Dalio, Bridgewater's co-founder and former chief investment officer, has been a long-time believer in portfolio diversification and optimal risk-to-reward ratio usage. "Risk and diversification are of paramount importance, and the fact is that if you diversify well, you can reduce your risk by 70% or 80% if you take uncorrelated, good things," Dalio told Investopedia. 

While iShares Core S&P 500 ETF IVV is Bridgewater's largest holding, accounting for approximately 5.7% of the total portfolio as of Sept. 30, the hedge fund is moderately bullish on Chinese stocks. 

This comes as China's economic slowdown, coupled with other headwinds, has caused stocks to plummet for quite some time, making their valuations lucrative. As the Chinese government takes steps to address the internal turmoil amid the nationwide property crisis, Chinese stocks might gain momentum in the latter half of the year. 

Some of the most promising Chinese stocks are as follows. 

PDD Holdings Inc.

Shares of PDD Holdings Inc. PDD have slumped by over 6% so far this year amid concerns regarding China's economic slowdown. However, PDD's flagship Temu platform has been gaining popularity, boasting approximately 50 million monthly users as of January. 

Since its launch in the U.S. in September 2022, Temu has rapidly grown to become a dominant player in the discount retail space, accounting for roughly 17% of the nation's total market share. Temu has nearly 750 million monthly users worldwide, driving PDD's success as one of the biggest retailers in China. It is currently the eighth-largest company in China in terms of market capitalization and the second-largest retailer after Alibaba. 

“Temu's value positioning, the gamification of its app, the increase in ad spend, its vast assortment and its close supplier relationships are what we believe is driving the company's growth,” market intelligence firm Sensor Tower stated in a note. 

The Benchmark Co. currently has a Buy rating on PDD stock with a price target of $215, indicating a potential upside of nearly 60%. 

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Alibaba

Alibaba Group Holding Ltd. BABA, China's largest e-commerce retailer, has been recouping after facing an intense shakedown with Chinese regulators. The company was charged with administering monopolistic practices and was subsequently fined $2.8 billion in a landmark antitrust case in 2021. This, along with the country's economic slowdown, has caused Alibaba to deliver lackluster performance over the past couple of years. Shares of Alibaba have slumped over 26% over the past year. 

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Alibaba Co-Founders Jack Ma and Joe Tsai have raised their stakes in Alibaba, instilling market optimism regarding the company's growth prospects. Ma bought approximately $50 million worth of Alibaba stock in the fourth quarter of 2023 and is currently the largest individual shareholder. Tsai has a 1.4% stake in Alibaba as of last year through his family investment vehicle Blue Pool Management, making him the second largest shareholder of Alibaba. 

The company has become attractive at its current valuations. Michael Burry, often known as the Big Short Investor, who generated roughly $800 million from his bet on the 2008 crisis, increased his investment in Alibaba recently. 

Burry increased his total BABA holdings by 25,000, or 50%, in the fourth quarter of 2023. 

Susquehanna International Investment Bank has a Positive rating on Alibaba stock with a price target of $135, indicating a potential upside of over 82%. JPMorgan has an Overweight rating on the Chinese retailer, with a price target of $110, indicating a potential upside of roughly 50%. 

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