You should sell Nvidia; Do I buy China? That’s what this billionaire investor does

David Tepper, CEO of Appaloosa Management, is one of the best-known hedge fund managers working today.

Tepper has a net worth of $21.3 billion, making him one of the richest people in the world. He is known, among other things, for taking a contrarian approach to investing, zigging while others zag.

Tepper’s latest moves are an excellent example of this philosophy. In the second quarter, Appaloosa Management dumped the stock Nvidia (NVDA -2.13%)probably the most popular stocks on the market and rounded up into some of the most beaten down and unloved stocks available. Take a closer look.

Image source: Getty Images.

With Nvidia

Tepper’s fund sold 3.73 million shares of Nvidia, or about $450 million of the top artificial intelligence (AI) stock, in Q2. That wasn’t exactly what Appaloosa was all about. But it was more than 84% of it, leaving the fund with just 690,000 shares, representing about $90 million in stocks.

The Appaloosa boss did not comment directly on the Nvidia sale, but is one of several billionaire hedge fund managers to do so in Q2. Many seem to think that the so-called easy money has been made with Nvidia. Billionaire Stanley Druckenmiller also recently sold shares, saying the market is now recognizing what it recognized at the start of the AI ​​boom.

For Tepper, the Q2 sale continued a pattern. He disposed of 3.48 million Nvidia shares in the first quarter, even as the stock rallied during that period.

Appaloosa also sold off a number of other chip stocks in Q2, indicating a broader rotation out of the sector. Among those he sold were Intel and Advanced microdevices. It also reduced its position in “AI stocks” such as Amazon, Oracle, Microsoftand Meta platforms.

However, what Tepper was buying in return was even more surprising.

With shares in China

Chinese stocks have struggled over the past five years, falling sharply since the peak of the pandemic. A crackdown on the tech sector by Beijing and a weak post-COVID recovery have combined to cause the sector to lag behind.

In fact, as the chart below shows, iShares ETF MSCI China has fallen by 12% over the past five years, being overtaken by S&P 500which almost doubled in that time.

MCHI data by YCharts

However, Appaloosa seems to sense an opportunity in China, as the fund bought a number of Chinese stocks in Q2.

Appaloosa added over 1 million shares of Kraneshares CIS China Internet ETFs (KWEB 3.92%)that matters Tencent and Alibaba like his first two holdings.

The fund also added more than 660,000 shares of top e-commerce stocks JD.com565,000 shares of iShares China Large-Cap ETF (NYSEMKT:FXI)and 380,000 shares of KE Holdingsa Chinese real estate services company.

Although Appaloosa actually reduced its stake in Alibaba, the Chinese e-commerce stock remained its top holdings, accounting for 12.2% of Appaloosa’s portfolio.

The fund first bought shares of Alibaba in Q2 2022. It has acquired the other Chinese stocks more recently, mostly in the past year.

Why Tepper is buying China

Tepper did not elaborate on his optimism about China, but he likely believes the sector is oversold and is set to recover.

Anyone with a bullish bet on China got some good news on Tuesday, when Chinese stocks rose on the back of surprise interest rate cuts, the government’s biggest effort to stimulate the economy since the pandemic.

Indeed, Chinese stocks jumped on the news. The iShares MSCI China ETF was up 9% in afternoon trading, perhaps pointing to more upside potential in the sector.

Should you follow Tepper’s Appaloosa to China?

The Chinese economy is still generally weak, but the rate cuts could be a sign that the government plans to do more to stimulate the economy. Even so, most Chinese stocks, such as Alibaba and JD.com, have seen disappointing growth in recent quarters, which is why stocks have generally lagged behind.

Tepper and his team at Appaloosa seem to think those stocks have bottomed out, and any good news would prompt a turnaround. That theory seems reasonable, but investors have been saying that for years, and China has continued to struggle.

Despite the rate cut, investors appear to remain cautious in China. Beijing is unpredictable, the economy is lagging, and new restrictions on chip exports from the US and other countries could further hurt its recovery.