Updates from ARK Investment Management LLC

Cathie Wood, chief executive of Ark Invest and one of the world’s most watched investors, said her fund had significantly reduced its exposure to China, leaving only a portfolio of companies that were identifiable “in favor “from Beijing.

Ark’s radical shift in strategy, she told an audience of institutional fund managers on Thursday, was due to the fact that the environment in China was “very different” from that in which many asset managers global had invested funds at the end of last year.

Chinese authorities are now focusing on social issues and social engineering at the expense of capital markets, she said. Everything Beijing deemed too profitable was now torpedoed.

The founder of Ark cited as a catalyst a series of crippling regulatory changes imposed in a single weekend by the Chinese government on the country’s online education industry in July. This government decision, she said, suggested that its pursuit of “common prosperity” had become its overriding concern.

The education guidelines banned for-profit companies from teaching academic subjects, wiping out the country’s multibillion-dollar tutoring industry overnight. The measures are part of a wider crackdown on the tech, entertainment and gaming industries.

“We have not eliminated our positions but we have significantly reduced our positioning in China and we have traded some of our holders, who have become losers, for companies which we know are courting the government with common prosperity,” said Wood.

Ark’s now heavily consolidated Chinese business portfolio seeking government favor included JD Logistics, which Wood said was building infrastructure in third- and fourth-tier cities with extremely low gross margins.

Wood also noted the Pinduoduo e-commerce platform, which she said invested heavily in the grocery industry and supply chains between farms and stores. “I think it’s basically investing for free to help the government,” she said, adding that some companies now seemed to specifically “curry favor with the government.”

Wood’s comments, which were made at a Mizuho Securities investor conference, oppose a debate among global investors over whether Chinese President Xi Jinping is making certain sectors of the stock markets of the world’s second-largest economy uninvestable due to unpredictable regulatory risk. suspended above them.

Beijing’s recent interventions have hit Chinese companies listed on the US stock markets particularly hard, including tutoring companies and ride-sharing group Didi, whose shares fell after regulators launched an investigation into the security of its data shortly. after its IPO.

Wood argued that despite Ark’s recent portfolio reshuffle, she didn’t think China wanted to cut itself off from the rest of the world or stop growing, but instead was undergoing a ‘reset’.

“We believe they will reconsider some of these regulations over time and we will not give up on China because they are so focused on innovation and they are so inherently entrepreneurial,” she said.

BlackRock said this week that it has attracted $ 1 billion in its first mutual fund in China, for which it gained approval this year. The financier George Soros criticized the decision in the Wall Street Journal, calling it a “tragic mistake”.

In recent years, China has taken steps to liberalize its vast, tightly controlled capital markets, allowing foreign companies to fully own their mutual funds and securities businesses.

Large international companies, which already have significant exposures to Chinese equities, have sought to expand into the nascent asset management industry, with BlackRock saying this week that its recently approved onshore operations have attracted 110,000 clients for its first fund. .

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