Billionaire hedge fund founder David Tepper said on Thursday that after the Fed cut interest rates, his next big bet is to buy all China-related stocks, possibly doubling the investment limit for Chinese stocks. He also mentioned that he estimates the Fed will cut interest rates two to three more times, and that the Fed cutting rates in a good economy makes him nervous. Although he doesn't like U.S. stocks, he also won't short them.

"Chinese stock market is very cheap, investment limits may double"

Tepper said in an interview with CNBC on Thursday,

"I believe the Fed's actions last week will lead to China relaxing its monetary policy, but I didn't expect the magnitude of their policy, I think it's a comprehensive shift, so we hold more Chinese stocks."

"We have increased holdings of some Chinese stocks. I may have said in the past that I would not exceed a 10% or 15% position limit, but that may no longer be true."

Tepper further stated that he may double the investment limit for Chinese stocks. He mentioned that after the Fed cut rates earlier this month, he bought more 'large cap technology stocks', such as$Alibaba (BABA.US)$And.$Baidu (BIDU.US)$.

"I basically bought all the stocks, I would be happy to see a price pullback, and during a pullback I may set a new investment limit."

This month, Tepper has become optimistic about the China market, following the People's Bank of China announcement of interest rate cuts and other measures to support the real estate market.

Affected by Tepper's remarks, $iShares China Large-Cap ETF (FXI.US)$ At the opening on Thursday, it surged 8.6% at one point, continuing the upward trend of stocks in mainland China and Hong Kong.

Tepper also pointed out that stocks in the Chinese market are cheaper compared to American stocks.

You will see that the price-to-earnings ratios of these large cap stocks are in single digits, while the growth rates are in double digits, which is in contrast to$S&P 500 Index (.SPX.US)$with a price-to-earnings ratio of over 20 times.

As part of the Chinese market, Tepper says he would buy$Wynn Resorts (WYNN.US)$and Las Vegas$Las Vegas Sands (LVS.US)$stocks. As a result, these two casino stocks each rose more than 6% and 7%.

According to a previous Wall Street Journal article, based on the Form 13F filing, Tepper reduced his holdings in Alibaba and American tech giants. Nonetheless, Alibaba remains his largest holding, accounting for 12% of his $6.2 billion stock investment portfolio.

Tepper also adjusted his investment in other Chinese companies. He increased his shareholding in KE Holdings Inc. and two Chinese exchange-traded funds; reduced his $JD.com (JD.US)$N/A.$KE Holdings (BEKE.US)$ positions in$PDD Holdings (PDD.US)$and $Baidu (BIDU.US)$ holdings. In total, Chinese stocks and etf account for 26% of its fund stock investment portfolio.

Tepper has become one of the well-known bullish investors in Chinese stocks hedge funds. In the first quarter of 2024, he significantly increased his holdings of Chinese stocks, especially more than doubling his stake in Alibaba. At that time, state-backed funds increased their buying power to support the market, and Tepper took advantage of the market adjustment period to substantially increase his holdings of Chinese stocks.

"Fed must ensure trust and must cut interest rates two or three more times"

Tepper also stated that investors should believe that if the Federal Reserve wants to maintain its credibility, when it indicates a rate cut, it should cut rates at least two to three more times.

"You just need to read what these guys are saying, Powell tells you something... He tells you there's an adjustment, he has to deliver to some extent, he has to act. I'm not smart, I just interpret what they say, whether they have conviction. They usually do what they say, especially when they have this level of conviction."

Last week, the Federal Reserve cut the benchmark interest rate by 50 basis points, marking the first easing policy action in four years. In addition to this rate cut, the Fed signaled through its "dot plot" that it expects to cut rates further by an additional 50 basis points by the end of this year. Fed Chair Powell stated that this rate cut is a "adjustment" by the central bank, but did not commit to taking similar actions at every upcoming meeting.

But Tepper stated,

"They must cut interest rates by another two to three 25 basis points, otherwise they will lose credibility. They will take some action beyond the 50 basis points. You know, another 25 basis points, another 25 basis points, seems to be something that has to be done."

"I don't like the U.S. market, but I won't go short"

Nevertheless, Tepper stated that the macro background of the Fed easing monetary policy in a relatively stable economic situation made him nervous, just like in the 1990s. The significant rate cut last week occurred when most economic indicators seemed quite solid.

"That was around the 1990s, when the Fed cut rates in a good economic environment. As a result, the economy was very strong in 1997, and the subsequent rate cuts made the market more prosperous, leading to a bubble frenzy in 1999 and early 2000. So I don't like this situation, I prefer value investing."

However, Tepper stated that although the Fed's actions made him hesitant, he would certainly not short US stocks because loose policies would bring immediate benefits.

"From a value perspective, I don't like the US market, but I definitely won't short it, because loose monetary policy is pervasive and the economy is relatively good. In this situation, not going long would make me very nervous."

According to form 13f filings, Tepper continues to reduce exposure to USA technology companies, including$Amazon (AMZN.US)$,$Microsoft (MSFT.US)$And.$Meta Platforms (META.US)$ 。他对$NVIDIA (NVDA.US)$公司的持股在本季度下降了84%至85 million美元，占投资组合的1.4%。

Editor/Rocky