This billionaire owes his fortune to China Tech. Here’s how to participate:

Sometimes investors need to open their minds and expand their geographic horizons to find attractive value. For at least one billionaire, that meant investing in prominent Chinese technology companies.

The billionaire in question is David Tepper, who founded and currently manages the Appaloosa Management hedge fund. He also owns the Carolina Panthers and Charlotte Rugby Football Club.

Tepper recently reduced his fund’s holdings in certain U.S. technology stocks while increasing its exposure to China-based technology companies. Of course, this strategy isn’t limited to the ultra-wealthy, so you can follow Tepper’s trades, albeit not on the same scale. Let’s take a look at what noteworthy moves Tepper and Appaloosa are making in the first quarter of 2024.

Less Mag-7, more Chinese.

According to Bloomberg, Tepper reduced Appaloosa’s holdings in Magnificent Seven stocks, including Amazon (NASDAQ:AMZN), Microsoft (NASDAQ:MSFT), Meta Platforms (NASDAQ:META) and NVIDIA (NASDAQ:NVDA). This Mag-7 trimming is almost sacrilegious at a time when tech giants’ names dominate financial media headlines.

Before anyone accuses Tepper of being unpatriotic, consider what he is doing with his valuation-based rebalancing strategy. The four Mag-7 companies mentioned earlier have 12-month GAAP trailing price-to-earnings (P/E) ratios that value investors might find objectionable.

• Amazon: 51.83 times revenue
• Microsoft: 36.41 times revenue
• Metaplatform: 27.2 times revenue
• NVIDIA: 77.52x revenue

Although Meta Platform is the most advantaged of the group, META stock has also surged from $100 to $500 over the past year and a half. So it would be understandable if Tepper was involved in making some profits with this particular stock.

Tepper stepped away from Mag-7 stock in the first quarter, moving into certain China-based technology companies. This may not seem like a great value investing strategy, as the MSCI China Index (MSCI) has risen sharply since January.

However, Bloomberg observed that the MSCI China Index is trading at “less than half” the value of the S&P 500 (SPX). So Chinese stocks may be relatively cheap, if not necessarily cheap.

Digging deeper into the details, Tepper more than doubled Appaloosa Management’s position in Alibaba (NYSE:BABA) stock. This is interesting because Alibaba is basically the Chinese counterpart to Amazon in the United States. As mentioned earlier, Tepper has reduced his share of Amazon.

Alibaba’s P/E ratio is 20.46, indicating that the company is worth much less than Amazon. Moreover, Alibaba succeeded in increasing its sales by 7% in the first quarter compared to the same period last year, despite difficult economic conditions in China.

Alibaba Chief Financial Officer (CFO) Toby Xu also emphasized the company’s commitment to returning value to its shareholders.

“During fiscal 2024, we repurchased $12.5 billion of stock, and our board of directors approved dividends of $4 billion for fiscal 2024,” Xu said.

Achieve China exposure through stocks and funds

Along with Alibaba stock, Appaloosa Management increased its positions in Baidu (NASDAQ:BIDU) stock and PDD (NASDAQ:PDD) stock. Additionally, the hedge fund bought shares of JD.com (NASDAQ:JD) and two China-focused exchange-traded funds (ETFs), which we’ll discuss in a moment.

Below is a brief summary of the P/E ratios of these companies.

• Baidu: 14.76 times profit
• PDD: 25.22 times revenue
• JD.com: 16.08 times revenue

Keep in mind that all of these P/E ratios may have been significantly lower when Appaloosa purchased the stock in the first quarter. But there still seems to be nothing overrated here.

Given its low valuation, Baidu stock may be the most interesting stock out there. The company’s revenue for the first quarter of 2024 was 31.513 million yuan, a slight increase compared to 31.144 million yuan in the same period last year.

For years, Baidu has been China’s de facto equivalent of Alphabet’s (NASDAQ:GOOGL) (NASDAQ:GOOG) Google. But Baidu today describes itself as a “leading” artificial intelligence (AI) company “with a strong Internet foundation.”

In other words, the AI ​​craze is not limited to the U.S. market. PDD and JD.com are both highly profitable Chinese e-commerce companies that are not currently overvalued.

All in all, Tepper could be justified in pivoting to a China-based tech name in 2024. On the other hand, if you don’t want to be a stock picker, take a look at the two funds added by Appaloosa Management.

The funds in question are iShares China Large-Cap ETF (NYSEARCA:FXI) and KraneShares CSI China Internet ETF (NYSEARCA:KWEB). Like Tepper, you can add these two ETFs to your portfolio along with individual Chinese stocks for additional leverage. Then, as China’s economic recovery gains momentum, you could see huge returns from non-Magnificent-Seven picks.

disclaimer: All investments involve risk. Under no circumstances should this article be taken as investment advice or constitute liability for investment profits or losses. The information in this report should not be relied upon for investment decisions. All investors should conduct their own due diligence and consult their own investment advisors when making trading decisions.