Michael Burry: Now is the Perfect Time to Buy Hong Kong Stocks

Author: Zhao Ying

The battle between bulls and bears, represented by Michael Burry, is unfolding in the Hong Kong stock market, with bullish sentiments continuing to gather.

Michael Burry, the investor who gained fame for accurately predicting the 2008 U.S. subprime mortgage crisis and was portrayed in the film "The Big Short," recently stated that now is a "perfect time" to look for cheap stocks in the Hong Kong market. His bullish logic is based on the prediction that the global AI chip stock boom is cooling down, leading funds to flow out of South Korea, Japan, and the semiconductor sector in search of undervalued assets.

At the same time, Wang Yajun, head of Asian equity capital markets at Goldman Sachs, pointed out that the Hong Kong market has effectively entered the AI era, although the main indices have yet to reflect this reality.

Both perspectives point to the same conclusion from different angles: there is a significant divergence between the current lackluster performance of Hong Kong stocks and the real vitality within the market, which may itself present investment opportunities. For investors seeking undervalued assets, the appeal of Hong Kong stocks is rising.

Burry's Bullish Stance on Hong Kong Stocks: An Undervalued Opportunity After the AI Boom

Michael Burry, founder of Scion Asset Management, posted on the X platform on July 17, stating, "Now is the perfect time to find cheap stocks in Hong Kong, which should perform well after the shine of South Korea, Japan, and SOXX (semiconductor ETF) fades."

Burry's statement is backed by market context. Global chip stocks have recently faced massive sell-offs, with rising doubts about whether AI companies can convert technological investments into actual profits, compounded by high capital expenditure pressures, putting pressure on the previously leading semiconductor sector. In contrast, the decline of Hong Kong stocks this year has made their valuations relatively more attractive.

Notably, Burry took action earlier this month—according to Bloomberg, he increased his stake in Chinese e-commerce giant JD.com and established positions in DraftKings and Flutter, indicating that his bullish stance on Hong Kong stocks and related Chinese concept stocks is not just verbal.

Hong Kong Stocks Lagging Behind Major Global Markets This Year

From a data perspective, the relative weakness of Hong Kong stocks is evident. The Hang Seng Index has fallen about 7% this year, while the Hang Seng Tech Index has dropped even deeper by 15.22%, primarily due to weak consumer spending and insufficient confidence in the outlook for the Chinese e-commerce industry.

This stands in stark contrast to the strong performance of other major global markets. According to Bloomberg data, South Korea's benchmark index has surged 62% this year, benefiting from the strong performance of two major chip giants; Japan's Nikkei 225 index has risen 26%; and the iShares SOXX ETF, which tracks the semiconductor sector, has soared 76%.

It is this significant underperformance that leads Burry to believe that Hong Kong stocks meet the conditions for "bargain hunting"—as global funds begin to reassess the sustainability of the AI boom, previously overlooked Hong Kong stocks may welcome a chance for a rebound.

Goldman Sachs: Index Distortion, Hong Kong Stocks Have Entered the AI Era

Goldman Sachs offers another dimension of interpretation—the sluggishness of Hong Kong stocks is partly a "false impression" caused by the structural lag of the indices.

Wang Yajun, head of Asian equity capital markets (excluding Japan) at Goldman Sachs, recently stated that the Hong Kong market has already entered the AI era, but the main stock indices have yet to reflect this reality, which is the fundamental reason for the "ice and fire" phenomenon between the hot IPO market and the sluggish index performance.

Wang pointed out that the hottest topic in the Hong Kong market this year is AI, with the most actively traded, best-performing, and highest financing amounts all being AI-related stocks. However, adjustments to the index constituents take time, leading to a mismatch between the index and the true state of the market. He expects that the total equity financing in the Hong Kong market this year is likely to reach a historical high, with annual IPO financing expected to surpass the historical peak of 2021, and more AI companies are set to go public in Hong Kong in the second half of the year.

On the fundamental judgment, Wang believes that supported by growth in terminal demand, capital expenditures for AI companies will continue, providing a foundation for the long-term performance of related sectors.

Multiple Bullish Voices Gather, Discrepancies Remain

Burry is not alone in his views. According to Bloomberg, Morgan Stanley has also recently urged investors to buy Hong Kong stocks, citing optimistic expectations for corporate earnings and believing that the impact of the unlocking of restricted shares will be relatively limited.

However, the logic behind being bullish on Hong Kong stocks is not without challenges. The decline of the Hang Seng Index this year reflects ongoing market concerns about the pace of recovery in Chinese consumption and the profitability of the e-commerce industry, and these structural pressures are unlikely to dissipate completely in the short term. The "mismatch between the index and the market" described by Goldman Sachs' Wang also means that ordinary investors, if they only use the index as a reference, may underestimate the structural opportunities within Hong Kong stocks while also overlooking the pressures still faced by traditional heavyweight stocks.

For investors, Burry's bargain-hunting signal and Goldman Sachs' AI narrative together outline a picture of opportunities in Hong Kong stocks, but how to accurately position between the overall pressure on the index and structural highlights remains a core issue facing the market.