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Cathie Wood's Ark Invest Innovation Fund Reduces China Exposure to Zero
Ark Invest Innovation Fund Exits China Stocks
Cathie Wood, CEO of Ark Invest, has announced that her flagship innovation fund, ARK Innovation ETF, has reduced its exposure to China to zero. With nearly $9 billion in assets under management, Wood has consolidated her portfolio towards her favorite bets, such as Tesla, Coinbase, Roku, and Zoom, as the Chinese market faces an economic slowdown. Wood stated that during bear markets, they concentrate on their highest conviction names, and one by one, the Chinese stocks were eliminated from their portfolio.
Reasons Behind the China Exit
Wood's exposure to China and other emerging markets reached about 25% in 2020, as she was impressed by China's initial response to the pandemic. However, Wood changed her stance on China after Beijing started tightening its grip on the economy, particularly cracking down on the ultrawealthy and the tech sector. She expressed concern over China's real estate market, which has accumulated massive amounts of debt after years of rapid expansion.
ARK Fintech Innovation ETF Still Holds a Small Stake
While the flagship fund has completely exited its China exposure, ARK Fintech Innovation ETF still holds a small stake in Chinese e-commerce company JD.com. However, other Chinese names like Pinduoduo and Tencent have been sold off. Wood hinted that she might add back shares tied to China in the future, as the country overcomes its challenging period and the market enters a new bull cycle.
Positive Performance of the Flagship Fund
Despite the exit from China stocks, Wood's flagship fund, ARK Innovation ETF, has had a successful year so far. Its top holdings have rebounded from sharp losses triggered by rising interest rates, and the fund is currently up over 50% in 2023. Wood remains optimistic about adding diversification during bull markets and reconsidering some of the names they let go during their concentration strategy.
Conclusion: Implications for New Business
The decision by Cathie Wood's Ark Invest Innovation Fund to reduce its exposure to China stocks to zero could have significant implications for new businesses looking to enter the Chinese market. With Wood's fund being one of the most prominent and influential in the investment world, this move signals a lack of confidence in the Chinese economy and raises concerns about the country's regulatory environment.
For new businesses considering expanding into China, it is crucial to carefully evaluate the risks and challenges associated with the current climate. The Chinese government's crackdown on the tech sector and ultrawealthy individuals has created uncertainty and potentially unfavorable conditions for foreign companies.
Additionally, Wood's concerns about China's real estate market and the country's high levels of debt highlight potential risks that could impact the overall economic stability. These factors may dampen consumer confidence and affect market growth, making it more challenging for new businesses to enter and thrive in China.
However, it's important to note that Wood has not completely closed the door on investing in China. She indicated a potential return to Chinese shares in the future, once the country overcomes its current challenges and enters a new bull cycle.
Overall, new businesses should closely monitor the evolving situation in China and stay updated on regulatory developments. Conducting thorough market research, seeking local partnerships, and maintaining flexibility will be essential for navigating the rapidly changing landscape and maximizing opportunities in the Chinese market.
Article First Published at: https://www.cnbc.com/2023/07/21/cathie-wood-says-her-flagship-innovation-fund-has-completely-exited-china.html