Updates from ARK Investment Management LLC
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Cathie Wood (Managing Director of Ark Invest) said that her fund has significantly reduced its exposure in China and only a handful of companies are “compliant”.
Ark’s sudden change in strategy, she said to an audience made up of institutional fund managers, was due the China environment. “very different”From that in which many global investment managers had invested money last year.
She stated that the Chinese authorities are now focusing their attention on social issues, social engineering, and capital markets. Anything Beijing considered to be too profitable was at risk.
Ark’s founder spoke of the numbing changes the Chinese government made to the country’s online education system in one weekend in July. This was an indication that the government’s primary concern was “common prosperity”, she stated.
Education policy bans for-profit companies from teaching school subjects. This effectively wipes out the multi-billion-dollar tutoring industry in the country. These measures are part a wider crackdown on technology, entertainment, and gaming.
Tencent’s stock and NetEase’s net gaming stocks fell sharply Thursday. However, the Hang Seng Tech Index fell 4.7 per cent after authorities told the companies to “get out from solitary focus.” To break out of the pursuit of profit ”.
Wood stated that while we have not reduced our positions in China, we have dramatically reduced our China position and have traded some of our losers with companies we know are trying to win the government’s’shared prosperity.
Ark’s China portfolio was heavily consolidated and includes JD Logistics. Wood claimed that JD Logistics was constructing infrastructure in third and forth tier cities with low gross margins.
Wood also pointed out the Pinduoduo online marketplace, which she believes invests heavily in food and supply chains between stores and farms. She stated that “it’s basically free investment in order to help the government,” and noted that some companies are “throwing money at the government”.
Wood’s comments at a Mizuho Securities investor conference were in contradiction to a debate among global investment about whether Chinese President Xi Jinping had made certain sectors of the stock market of the second-largest economy uninvestable because they are subject to unpredictable regulatory risk.
Beijing’s recent intervention has hit Chinese companies listed on US stock exchanges especially hard. These include tutoring companies as well as Didi Chuxing, a driver service group that provides chauffeur services to Didi Chuxing drivers. Their shares crashed after regulators opened an investigation into data security shortly after their IPO.
Wood claimed that despite Ark’s recent portfolio shifting, she was not convinced that China wanted to be isolated from the rest of world or quit. Instead, it was undergoing a “reset”.
She said, “We believe that they will rethink some regulations over time. We will not lose sight of China because it’s so innovative and entrepreneurial by its nature.”
BlackRock this week announced that it would make its first Chinese mutual fund $ 1 billion. George Soros, a Wall Street Journal financier, called the move a “tragic accident”.
China has taken recent steps to liberalize its vast and tightly controlled capital markets. This will allow foreign corporations to own 100% of their mutual fund and securities business.
Companies with large international exposure to Chinese stocks have attempted to enter the emerging wealth management sector. BlackRock has announced that it has attracted 110,000 clients to its newly approved onshore business for its first fund.
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