Famous ‘Big Short’ investor Michael Burry has issued a stark warning regarding the structural integrity of Chinese technology stocks, cautioning that most investors do not actually own the companies they believe they are betting on.
The ‘Cayman Shell’ Vulnerability
In a series of recent posts on X and his Substack, Burry—who famously predicted the 2008 housing market crash—detailed a critical legal flaw in the Hong Kong market.
He noted that for nearly all major Chinese firms, excluding outliers like BYD or Haidilao International Holding Ltd.(OTC:HDALF), the securities held by international investors are merely shares in offshore entities.
“First, we must take a considerable detour and fully examine a vulnerability that applies to almost all these stocks,” Burry wrote. He clarified that “the actual shares bought by investors are shares of a Cayman Islands shell company with no operations.”
According to Burry, this structural link creates a disconnect between a company's operational success and the investor’s legal claim to its value.
Hong Kong Stocks: Structure & Strategy In the last 10 years, Netflix, Broadcom, and Tencent all increased revenue between 4.5-5X. Broadcom and Netflix have been leading performers, but Tencent's stock has almost exactly a 0% return over the last five years. This is the problem.… pic.twitter.com/rXaHHcmUEw
Burry highlighted a troubling divergence between corporate revenue and stock performance.
He pointed out that while giants like Netflix Inc.(NASDAQ:NFLX) and Broadcom Inc. (NASDAQ:AVGO) have seen their stocks soar alongside revenue, Chinese tech leader Tencent Holdings ADR(OTC:TCEHY) has delivered “almost exactly a 0% return over the last five years,” despite revenue increasing nearly fivefold.
This stagnation occurs even as the Hang Seng Index sits roughly 15% lower than its 2007 levels, noted Burry.
He suggests that the “easy credit environment” and the potential for radical government intervention “undercut the economy” and deter foreign direct investment, regardless of the “human nature” and drive of the Chinese workforce.
This is an excerpt from my Asia Fund letter to investors in 2005. The emergence of Tencent, Alibaba, Meituan, and other giant companies with global ambitions was obvious back then, even if they were not yet apparent. pic.twitter.com/528YhjFla2
Reflecting on his 2005 Asia Fund letter, Burry acknowledged that while he correctly identified the emergence of “global ambitions” in companies like Alibaba Group Holding Ltd. ADR(NYSE:BABA) and Tencent decades ago, the current “numbers game” has shifted.
He warned that traditional measures often fail to capture the impact of a paradigm shift until the “impact is imminent,” suggesting that the current valuation of these “shell companies” deserves a “deep look into vulnerabilities, virtues, and value.”
Disclaimer: This content was partially produced with the help of AI tools and was reviewed and published by Benzinga editors.
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