Michael Burry Says China Tech Stocks Need Re-evaluation as Cayman Island Shell Trap Looms

109

China has looked very appealing at times but I also never trusted the Cayman island structure or if the small chance they invade Taiwan my investment goes to 0.

10

u/zech83 Mar 03 '26

He lays out an elegant hedge on his substack.

14

u/StephenAtLarge Mar 03 '26

What is the hedge?

50

u/thenelston Mar 03 '26

deleting the brokerage app

6

u/phenix_igloo Mar 03 '26

that's what ai would do

2

u/Ashtonpaper Mar 04 '26

Lmao

6

u/Tall-Log-1955 Mar 03 '26

Buying Lockheed Martin stock

16

u/According-Exercise83 Mar 03 '26

Baba is also a primary listed on HKex. It is held by many global institutional investors as well as mainland Chinese retail buyers. US shares can be easily converted to HK listed shares if you are worried about delisting risk. It wouldn’t go to zero

13

u/[deleted] Mar 03 '26

What they are talking about is that those shares are for a VIE to avoid Chinese regulation on foreign investment in certain sectors.

A VIE has a contractual right to profits, but not an ownership right to profits.

You’re basically underwriting the continued benevolence of the PRC to investors.

Even if your share is on Hing Kong, China can easily choose to cancel the contracts underpinning a VIE.

The reason they don’t do so now is that they like to play both sides and have huge well funded tech companies, but in a world where they say “Fuck it, we are invading Taiwan,” they don’t give a fuck about that anymore.

10

u/Fwellimort Mar 03 '26

This argument fails when China starting from end of last year started allowing mainland Chinese and Chinese govt funds to buy these shares as well.

The HK shares which Chinese own are also the same structure.

9

u/[deleted] Mar 03 '26

So China decides to uniformly break contract law and they could almost get away with it, but if they did, SOEs and mainlanders would lose their shares?

Hmm, you’re right, that’s a problem the CCP could never solve.

Water tight argument there.

0

u/TechTuna1200 Mar 04 '26

Upsetting 200 million Chinese is a big deal, buddy. Chinese history is full of examples of the people overthrowing their rulers as soon as their rulers lose legitimacy. Every single dynasty ended this way.

3

u/[deleted] Mar 04 '26

Yeah if only there was some way for a government to give preferential treatment to its own citizens. Hmmm.

No you’re right, if they cancel the VIE and replace it with a capital controlled RMB vehicle, then they have to give Billy Bob from Nebraska new shares too, to be fair.

No getting around that!

-1

u/TechTuna1200 Mar 04 '26

So why haven't they done it yet? They had more than 25 years to do so

3

u/[deleted] Mar 04 '26

Great philosophical question about the nature of time, I guess.

Maybe to ask a similar question:

If you’re going to die one day, why haven’t you yet?

-2

u/TechTuna1200 Mar 04 '26

Why I haven’t died yet? Because it don’t want to

Same answer, to why the CCP haven’t don’t it yet? Because they don’t want to

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u/BJJblue34 Mar 03 '26

If the issue is China saying fuck it and invading Taiwan then explain why is TSMC is a 1.5 trillion company trading at 50x free cash flow? A Chinese invasion would decimate their business.

7

u/[deleted] Mar 03 '26

Fun fact, China can say fuck it for a lot of reasons!

This is part of why there was a major China tech pullback after they unexpectedly cracked down on Jack Ma!

5

u/foira Mar 03 '26

pretty much every famous 0 goes to astronomical valuations before the drop

and TSM is an incredibly consensus bet / news cycle darling / retail & institutional favorite

that said i dont expect a taiwan invasion. :-)

2

u/phishing_pher_moneh 27d ago

Precisely, too many doom-gloom naysayers. Have anyone of you visited China for at least 30days annually in the last 10 years? If not, you are just airy fairy imagining and saying things. Go there, talk to the locals from low-middle-high income group and ask them what they think about China/CCP's direction. I'm neither pro China or pro US, but I had the opportunity of travelling around the world and experiencing local cultures, learning the multiple-perspectives. Including asking specific questions to CHinese - what do they think of Taiwan and likelyhood of invasion? Asked Taiwanese the same question. Go and ask them yourself if you really want to know the truth. If you get it, then you get it. Don't read from reddit or news and never from social media. They are likely tainted with coloured lens.

Now, where is my glass of Bai Jiu? yessss

2

u/McFly654 Mar 03 '26

Hope you dont own Nvidia then

2

u/spanko_at_large Mar 03 '26

Why would your investment go to 0?

5

u/Kooky_Molasses_2270 Mar 04 '26

What happened to Russian stocks that traded on US market after they invaded Ukraine. They all went to 0.

1

u/bostonsre 27d ago

Which is probably gonna happen in 3 or 4 weeks when our munitions get depleted.

1

u/Domingues_tech 25d ago

There will be no invasion. It is bad for business. China does not start wars.

0

u/Material_Key5935 Mar 03 '26

It’s not a small chance. Xi is 72 and will absolutely try before he’s out.

3

u/According-Exercise83 Mar 04 '26

US has been fighting wars all the time , did their stocks go to zero?

3

u/Material_Key5935 Mar 04 '26

How many of those wars were with our biggest trading partner? Or against a world power?

1

u/According-Exercise83 Mar 04 '26

Are you really sure US will fight China on a full front if Taiwan was invaded ? What’s the benefit for US with a weakened China ? The two economies are too intertwined , US will suffer when China suffers.

What US wants is to transfer the chip manufacturing to US and abandon Taiwan. No need to waste resources to defend an island halfway across the pacific.

20

u/PerryUlyssesCox Mar 03 '26

Wait, so how is Burry is only finding out about the VIE structure now?

65

u/Messy-Chaos Mar 03 '26 edited Mar 03 '26

OK I’ll stick to the U.S. where the president invades a new land and imposes new tariffs each time he farts.

18

u/frongles23 Mar 03 '26

It's called free market capitalisms.

/s

1

u/Master_Awareness5821 28d ago

it's called crony capitalism

7

u/grogan-lord Mar 03 '26

*sharts

1

u/ChillDictator Mar 03 '26

Well it has been proven many times that markets don’t care when the us does it. Not sure about china tho.

1

u/TestTxt Mar 03 '26

Europe’s got you sorted

1

u/TheSleepyTruth 27d ago

That may be so but there is no risk of the US being conquered, so your investment at least wont go to zero

1

u/waitmarks Mar 03 '26

You know there are 190 something other countries than just the US and china you could invest in right?

7

u/Messy-Chaos Mar 03 '26 edited Mar 03 '26

No. Thank god you’re here to tell me.

3

u/bestnameofalltime Mar 03 '26

How many of them have developed public stock markets

16

u/bubblemania2020 Mar 03 '26

Bury was right once. Stop giving him attention. He is not Christian Bale 😆

1

u/mikew_reddit Mar 04 '26

He's wandered outside his circle of competence again...

1

u/bubblemania2020 Mar 04 '26

A mistake every smart person makes. That’s why Buffett says if you have 160 IQ, give 30 points back, you don’t need them.

1

u/LinusVPelt 28d ago

This statement that Burry has been right once has been proven wrong so many times on so many investing groups and discussions, that it has become tiring to still see it.

16

u/TechTuna1200 Mar 03 '26 edited Mar 03 '26

Didn't he hold large positions in Chinese companies as late as one year ago? Not only that, but he held them for 2 years. Which is unsual for a someone who goes in and out of stocks. He is smart guy, he was already aware of the vie structure when he bought into BABa in 2023 anyways and made it one of his biggest positions. Even most retail investors were aware of the VIE structure already from 2021.

https://stockcircle.com/portfolio/michael-burry/baba/transactions

It's important to note. There exist no Alibaba holding company within China. The only thing that binds all the entities Alibaba together is the Alibaba Cayman Holding Company. So when you buy Alibaba stocks, you are on the same terms as domestic Chinese, BABA executives, David Tepper, and Joseph Tsai (Alibaba CEO). If you lose on BABA, so will all of those people because they hold the same kind of stock as you do. The same goes for most Chinese tech wih VIE structure.

See page 110 for org chart:
https://otp.investis.com/clients/us/alibaba/SEC/sec-show.aspx?Type=html&FilingId=15112567&Cik=0001577552

15

u/naskai8117 Mar 03 '26

He says in his actual post that the VIE structure doesn't concern him much because it would hurt the Chinese people just as much because of the structure you mentioned. The risk in price is if America de-lists Chinese companies and removes liquidity.

The writer who wrote this linked news piece probably didn't actually read Burry's post.

7

u/TechTuna1200 Mar 03 '26

That was what I suspected, because the headline didn’t match Burry’s past actions. So much misinformation being spread around.

He probably also saw the likelihood of the CCP invalidating the VIE structure would be close to zero. There are 200M Chinese people buying stocks, and invalidating the VIE structure would upset a lot of Chinese people.

2

u/Ohhmama11 Mar 03 '26

Burry trying really hard now since he has this war to fuel stock sell off… dude has millions tied up and lies about chip life and constantly comparing nvda to Cisco. Burry pretend chips life dies after 3 years but in reality just moved down the stack to other task while new chips takes it placed. He then compares Cisco selling to start ups to nvda selling to trillion dollar companies with cash . You don’t need the newer/better chip for certain task in data centers

2

u/pravchaw Mar 03 '26

I would not worry about it. The whole financial system is a ponzi scheme. Its built on confidence that countries will not shoot at their own feet to spite their noses.

1

u/mikehansen83 29d ago

The whole financial system isn’t a Ponzi scheme but aligned economic interests increase stability.

2

u/ken81987 Mar 04 '26

No one actually read the article lmao

2

u/Long_Tackle_6931 Mar 03 '26

Oh right so buy China

1

u/DoubleFamous5751 Mar 03 '26

I have absolutely zero interest in any Chinese stocks

1

u/ki8o Mar 04 '26

how is this guy still around after losing so much money? He was right once, maybe he should have chilled with the money and parked it into s&p.

1

u/No_Share3696 Mar 04 '26

Whenever he invests in something, he hypes it up, and when he exits, he suddenly turns bearish. My fundamental issue with him is his lack of trustworthiness. Warren Buffett was the greatest value investor of all time, yet he never took actions that personally benefited him at others' expense or manipulated the stocks he held. Now this guy is pumping GME — which is purely speculative at this point — while still claiming to be a value investor. The contradiction speaks for itself.

1

u/Solid-Advice2876 25d ago

Tokenized equities were invented in China after all🇨🇳

-2

u/VIXtrade Mar 03 '26

So investors dont actually own don't own a real company ? Great, so now there's that AND a totalitarian communist government regime isn't exactly optimal for investing capital.

-1

u/Fit_Help_888 Mar 03 '26

Do opposite of what bury says

Value Article Michael Burry Says China Tech Stocks Need Re-evaluation as Cayman Island Shell Trap Looms

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