Hedge fund manager Dan Niles says he's buying Chinese stocks again after government crackdown

Published Fri, Jul 30 20215:05 PM EDTUpdated Fri, Jul 30 20215:24 PM EDT

Kevin Stankiewicz @in/kevin-stankiewicz-b5593466 @kevin_stank

Hedge fund manager Dan Niles told CNBC on Friday he started buying a group of Chinese stocks this week, believing the cohort has fallen to attractive levels after a sell-off driven by Beijing's heightened regulatory scrutiny. It marks a reversal from where Niles, the founder and senior portfolio manager of the Satori Fund, stood in early July. At that point, the investor said there was too much risk and he was temporarily staying away . In a " Closing Bell " interview, Niles said his interest in the stocks piqued Tuesday due to reports in Chinese Communist Party-affiliated media outlets , which the investor interpreted as "trying to calm markets." "I think it makes sense that if you've wiped out $1.5 trillion of market cap in three days, which is what happened earlier this week, at a certain point that 10% of the population that owns stocks is going to start to get really upset, and I think finally that caught their attention," Niles said. That's why "I started buying a basket on Wednesday, added to that basket on Thursday and added more today while shorting a lot of U.S. stocks that I could balance against it, which have been up a lot," Niles said. The Chinese government's regulatory crackdown in recent weeks on ride-hailing giant Didi Global , private education companies and other tech firms led investors to dump shares. The KraneShares CSI China Internet ETF — known by its ticker symbol KWEB — is down nearly 28% in the past month. The uncertainty created by Beijing's actions has unsettled shareholders and set off a round of questions about whether investors should own companies that either are in the government's crosshairs or may find themselves there eventually. "Any one of them could be vulnerable. It's time. You've got to go. You can't own these stocks," CNBC's Jim Cramer said last week , referring to Chinese ADRs that trade in the U.S. including Alibaba and Baidu . For Niles, he stressed it's all about risk appetite and the nature of his investment firm. "Remember we're a hedge fund, so we're always trying to get the best risk-reward and balance out those risks," he said. "We bought a basket of over 50 names, and we've just been adding to that because we didn't want to take company-specific risk," Niles added. One name he's avoiding is Didi, which went public in the U.S. in late June and a mere days later found itself facing regulatory backlash from the Chinese government regarding data and privacy practices. The company and its stock have been on a roller coaster ride since. On Thursday, Didi denied a report in The Wall Street Journal that said the ride-hailing company could go private to satisfy the government. That initial Journal report sent the company's shares soaring nearly 40% in early trading Thursday; the stock eventually closed that trading session up 11.2%. The stock added another 4.5% Friday to close at $10.31 per share, which is still below its IPO offering price of $14. "I could see why people would get involved in Didi," Niles acknowledged, before back-and-forth about the Journal report. "I didn't want any piece of that. I stayed away from that," he said. Watch the full interview above with Satori Fund's Dan Niles.

An investor watches the electronic board at a stock exchange hall on November 26, 2018 in Nanjing, Jiangsu Province of China.

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