China Offers 'So Much Better Companies At So Much Lower Prices': Charlie Munger

Shares of many Chinese companies that trade in the United States have fallen over the last year with fears of accounting irregularities, tighter control and the potential to be delisted from U.S. exchanges. That hasn’t stopped Berkshire Hathaway Inc (NYSE: BRK-A)(NYSE: BRK-B) Vice Chairman Charlie Munger from being a fan of investing in Chinese companies.

What Happened: Munger said there is tension and risks with investing in Chinese companies.

“The government of China has worried the investors from the United States who invest in China, more in recent months and years,” Munger said.

The comment came in response to a question at the annual Berkshire Hathaway shareholder meeting asking about investing in countries with authoritarian regimes, citing Russia and the war in Ukraine.

Munger said shares of Chinese stocks have been affected, especially internet stocks. Although, he indicated that recent comments made about China show some signs of improvement.

“We’re having some hopeful signs.”

Despite the risk, Munger believes there are good opportunities to invest in Chinese companies.

“The reason that I invested in China is I get so much better companies at so much lower prices. And I’m willing to take a little bit more risk to get into the better companies with the lower prices.”

Munger said other investors might have the opposite conclusion, and concerns about China are higher than they were 50 years ago.

Berkshire Hathaway Chairman Warren Buffett chose to stay quiet on the question of investing in Chinese stocks and authoritarian regimes.

“I have nothing to add,” Buffett said.

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Why It’s Important: Munger’s Daily Journal hedge fund took a position in Chinese technology leader Alibaba Group Holdings Inc BABA in the first quarter of 2021. The investor raised the position over several quarters.

It was revealed earlier this year that Munger’s hedge fund cut its position in Alibaba by more than half, going from 602,060 shares at the end of 2021 to 300,000 shares at the end of the first quarter.

Munger’s comments suggest a bullish outlook on the ecommerce giant in China, with some risk attributed to the company.

Price Action: Alibaba shares are down 19% year-to-date and have lost over 58% of their value over the last year. Alibaba shares closed at $97.09 on Friday, versus a 52-week range of $73.28 to $236.17.

Photo: Photo: Created with an image from Nick Webb on Flickr