Michael Burry Exposes ‘Risk’ in Chinese Tech, Warns of Hong Kong’s ‘Cayman Islands Shell’ Trap
The famous ‘Big Short’ investor Michael Burry has issued a stark warning about the structural integrity of Chinese technology stocks, warning that many investors are not really the owners of the companies they believe they are betting on.
In a series of recent posts on X and his Substack, Burry—who pessimistically predicted the housing market crash of 2008—described a key legal flaw in the Hong Kong market.
He mentioned that almost all the big Chinese companies, except the foreign companies like BYD or Company Haidilao International Holding Ltd. (OTC:HDALF), securities held by international investors are simply shares in offshore companies.
“First, we have to take the long way around and fully assess the risks that apply to almost all of these stocks,” Burry wrote. He clarified that “the actual shares purchased by the investors are shares of a defunct Cayman Islands shell company.”
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According to Burry, this structural link creates a disconnect between a company’s operational success and an investor’s legitimate claim to its value.
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In the last 10 years, Netflix, Broadcom, and Tencent have all increased their revenue between 4.5-5X. Broadcom and Netflix have been the top performers, but Tencent’s stock has returned nearly 0% over the past five years.
This is the problem.… pic.twitter.com/rXaHHcmUEw
Burry highlighted a troubling discrepancy between corporate income and stock performance.
He pointed out that while the giants like it Netflix Inc. (NASDAQ:NFLX) and The company Broadcom Inc. (NASDAQ:AVGO) have seen their shares rise as well as revenue, China’s technology leader Share price Tencent Holdings ADR (OTC:TCEHY) has delivered “nearly 0% returns over the past five years,” despite revenue increasing nearly fivefold.
Trends: Blue-chip stocks have historically outperformed the S&P 500 since 1995, and fractional investments are now opening up this institutional asset class to everyday investors.
The freeze comes as the Hang Seng Index sits about 15% below its 2007 levels, Burry noted.
He suggests that the “easy credit environment” and the power of strong government intervention are “slowing down the economy” and deterring foreign direct investment, regardless of “human nature” and the enthusiasm of the Chinese workforce.
This is a quote from my Asia Fund letter to investors in 2005. The emergence of Tencent, Alibaba, Meituan, and other large companies with global ambitions was evident at the time, even if they were not yet visible. pic.twitter.com/528YhjFla2
