Cathie Wood, the rockstar tech investor, and CEO of Ark Invest, has steered Ark’s flagship fund away from China, wiping clean its exposure to the Asian giant. This move comes in response to China’s intensifying regulatory crackdown on tech giants, which has left investors around the world on tenterhooks.
The dramatic escalation of regulatory actions by Beijing, specifically against Alibaba and its founder, Jack Ma, rang alarm bells for Wood. Ma’s public criticism of China’s financial regulatory system in October 2020, where he likened Chinese banks to “pawnshops,” sparked a regulatory storm that swept up his businesses – Alibaba and fintech firm Ant, and set off wider tech-centric regulatory action.
Reflecting on the situation in a recent webinar, Wood revealed, “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.”
The Ark Innovation ETF, the firm’s flagship fund boasting nearly $9 billion in assets under management, had previously held a significant position in China and other emerging markets. The exposure was a direct result of Ark’s admiration for China’s “restrained” approach during the global pandemic, which steered clear from pumping excessive money into the problem.
However, the ongoing crackdown and increasing uncertainties forced Ark to retreat from China. Stakes in tech mammoths such as Alibaba and Tencent were steadily trimmed, and the exposure to China has now shrunk to nil.
Beyond tech regulation, Wood also highlighted concerns over China’s burgeoning real-estate crisis. China’s economy, which previously enjoyed nearly 15 years of double-digit real GDP growth, has been a “big disappointment” following the end of its COVID-zero policy. Wood emphasized, “Growth like that can cover a lot of sins, and those sins usually involve debt, importantly in the property space. So, we do believe that China is facing its day of reckoning in this regard.”
Despite these recent strategic changes, the Ark Innovation ETF closed 0.4% higher at $47.93 last Friday, posting a notable 54% growth so far this year. With this clear departure from China, it’s evident that Wood’s fund continues to carefully navigate the shifting waters of global investment, always prioritizing long-term growth and sustainable investing.