Cathie Wood’s Ark ETFs, Aberdeen are nibbling in Tencent, JD.com and other Chinese tech stocks in boost for market bulls

Cathie Wood’s smaller Ark ETF vehicles are picking up and adjusting stakes in Chinese tech stocks to keep out of harm’s way
Business Owner TGV, a US$500 million hedge fund, stepped up its bets on Alibaba and indirectly in Meituan in the first half

US-listed Chinese stocks

Cheryl HengandBobo Chan

Published: 9:30am, 30 Aug 2021

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Corrected [4:24pm, 31 Aug, 2021]

[4:24pm, 31 Aug, 2021]
Corrects BlackRock China Fund holdings in July and updates with hedge fund's report on Alibaba

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Cathie Wood’s Ark Investment Management may be turning less bearish on Chinese tech stocks based on last week’s fund transactions. She is, however, still shielding her biggest exchange-traded fund (ETF) from the risk since dumping almost all of them in July.

Wood, chief executive of the New York-based money manager, last week added the American depositary shares of companies including Tencent Holdings, JD.com and Pinduoduo in the smaller of her six actively-managed ETFs, filings showed. A German hedge fund managed RV Capital disclosed its bullish view on China.

Her flagship US$25.5 billion Ark Innovation ETF, however, has kept a distance. None of them has reappeared in the fund’s top 49 holdings it published as of August 27.

The caution appears to be justified, as a rebound in Chinese tech stocks last week proved to be fleeting. The 7.3 per cent recovery in the Hang Seng Tech Index appears to be aided by favourable technicals, while company and industry fundamentals are still clouded by China’s regulatory assault.

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“China’s regulatory clampdown may appear heavy-handed, but should be seen in context,” said Nicholas Yeo, head of China equities in Hong Kong at Aberdeen Standard Investments, which managed US$635 billion globally at the end of 2020. “Regulators will continue to focus on the internet, education, real estate and health care [sector], But that does not mean investors should avoid these sectors. Those who have sold indiscriminately risk missing opportunities.”

Wood reduced her bets on China in the Ark Innovation ETF to near-zero last month, from about 8 per cent in February, avoiding steeper losses. Since late 2020, President Xi Jinping has unleashed a torrent of regulations, culminating in a US$1 trillion sell-off in July in Chinese stocks globally.

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Wood, who oversees six ETF vehicles with US$49.3 billion of assets, said she was not pessimistic about China in the long run, Bloomberg reported last week. New rules introduced by the Chinese government in the current crackdowns were not meant to halt growth and progress, she added.

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The US$4 billion Ark fintech Innovation ETF picked up more of Tencent, Pinduoduo and JD.com during the week, according to holding changes. It removed all its positions in Meituan, trimmed ZhongAn Online P&C Insurance and maintained its stakes in Ping An Healthcare and Alibaba Group Holding, the owner of the Post.

Within the US$3.09 billion Ark Autonomous Technology and Robotics ETF, its interests in the securities of JD.com, BYD, Niu Technologies and Baidu were little changed. It reduced its Alibaba ADRs by 79 per cent.

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“We sorted through the companies doing things the government likes, and we’re seeing companies that are catering to Tier 3 and 4 cities in logistics and groceries,” Wood said in the Bloomberg Radio interview. “We are swapping them out of other names that we think are going to continue to be in harm’s way or certainly under government pressure, like Alibaba, for example,” Wood added.

Aberdeen’s US$673 million All-China Equity Fund marginally increased its assets in Tencent, Alibaba, and JD.com in July from June, according to fund statistics. At BlackRock, its US$1.62 billion China Fund trimmed its holdings in Chinese tech stocks, including Alibaba, Tencent and Meituan and NetEase from June, according fund factsheets.

"Our global emerging markets fundamental equities team has held a cautious view on Chinese tech stocks since around April this year," Joanna Yau, a BlackRock spokeswoman in Hong Kong, said in an email on Wednesday. Changes in its Top 10 fund holdings may not conclusively reflect its sector view due to potential stock-price effects, among others.

Like Ray Dalio at Bridgewater Associates, the €427 million (US$500 million) Business Owner TGV is counting on its on-the-ground experience with contrarian bets on China. The hedge fund said on August 30 it bought Alibaba and added more of Prosus, a major shareholder of Tencent, in the first half.

“The aggressiveness of the policy has led to a sharp sell-off in not only education-related companies, but also technology in general,” Tai Hui, chief markets strategist for Asia-Pacific at JPMorgan Asset Management wrote in a report. “We believe that investor confidence could take some time to settle, but we maintain our view that China continues to offer ample investment opportunities to international investors.”

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