Cathie Wood’s Ark ETF, a $9 billion flagship Ark fund cut all exposure to China after Beijing started cracking down on Jack Ma. Beijing’s tech crackdown on Alibaba spooked tech investor Cathie Wood so much that she slashed the China exposure of ARK flagship innovation fund down from a significant percentage in 2020 to zero now.
“We saw the trouble that Alibaba, Alipay got into, Jack Ma specifically, and we began to wonder ‘Oh no, is this a broad-based crackdown by the government on any company or person with too much power?’ And that’s exactly what it was, as it turns out, in hindsight,” Wood, Ark’s CEO and CIO, said in a webinar on Thursday.
Beijing tech crackdown
Chinese authorities were angry after Ma gave a speech in October 2020. In his speech he criticized China’s financial regulatory system and claimed Chinese banks were operating with a “pawnshop” mentality. His words prompted intense regulatory scrutiny of his businesses including Alibaba and fintech firm, Ant and a broader crackdown on tech firms in China.
Cathie Wood’s Ark ETF had invested in China particularly as it was impressed with the country’s “restraint” during the pandemic.
“They were not throwing money at the problem. They were very disciplined in terms of their monetary and fiscal policy responses,” said Wood. Ark Innovation ETF, the ARK flagship innovation fund, neared a 25% exposure to China and other emerging markets with stakes in tech giants Alibaba and Tencent, among others.
Cathie Wood Ark ETF leaving China
The Cathie Wood Ark fund’s exposure to China is now down to zero after fund managers pared its stakes down steadily. The Cathie Wood Ark EFT has nearly $9 billion in assets under management, per Morningstar, a financial services firm.
Wood also said on Thursday she was concerned about the country’s real-estate crisis.
She said China’s economy which has been throwing up one red flag after another has been a “big disappointment” since it ended its COVID-zero policy following nearly 15 years of double-digit real GDP growth.
“Growth like that can cover a lot of sins and those sins usually involve debt importantly in the property space, and so we do believe that China is facing its day of reckoning in this regard,” she said.
Cathie Wood Ark fund investments in China
The Ark Innovation ETF has retained a minor share in JD.com, a Chinese e-commerce firm. However, it has disposed of Chinese companies such as Pinduoduo and Tencent from its portfolio.
Cathie Wood Ark ETF future in China
Despite the current exit from China, Cathie Wood’s Ark ETF might consider reinvesting in Chinese stocks as the country navigates through this challenging period and the market enters a new bull cycle.
She suggested that more diversification could be expected during bull markets, especially with the introduction of more IPOs and the reconsideration of some names that were let go in the concentration strategy.
Ark flagship innovation fund has had a successful year despite the challenges, with its top holdings rebounding from sharp losses triggered by rising rates. The Ark Innovation ETF has seen an increase of more than 50% in 2023.
Stock update
Cathie Wood’s Ark Innovation ETF closed 0.4% higher at $47.93 on Friday. It is up 54% so far this year.
