Cathie Wood’s Ark Invest is rapidly shedding Chinese stocks as Beijing’s regulatory crackdown expands

Cathie Wood
Cathie Wood is the CEO and chief investment officer of ARK Invest, which runs three of the highest-returning stock ETFs of the last three years.

Cathie Wood’s Ark Invest is rapidly shedding its positions in Chinese technology stocks amid an ongoing regulatory crackdown by Beijing.

On Friday, Ark Invest sold the last remaining shares of its stake in Tencent, and is quickly shedding KE Holdings, an online property website based in China, and, according to Ark’s daily trading updates. KE Holdings fell as much as 26% on Monday.

The latest regulatory crackdown in China hit education and tutoring companies on Friday, with companies like TAL Education, Gaotu Techedu, and others plunging more than 50%. China said it is banning tutoring on holidays and weekends for students to lessen the burden of schoolwork, which makes up a big chunk of the tutoring companies business.

The China’s increased scrutiny on certain businesses began late last year following the abrupt cancellation of Ant Group’s IPO. A clampdown on the fintech giant then spread to Alibaba and Tencent earlier this year, with both getting hit with anti-monopoly measures and fines.

Since then, ride-hailing giant Didi, which went public last month, has been hit with regulatory actions by China amid data-security concerns. That crackdown on Didi led to TikTok parent ByteDance shelving its planned IPO.

All in all, the uncertain regulatory environment for Chinese stocks has led to an investor exodus from popular names like Tencent and Alibaba, which were both down as much as 10% and 7% in Monday trades, respectively.

In a webinar with investors earlier this month, Wood said a “valuation reset” among Chinese stocks is occurring, and that their valuations could remain depressed for some time.

“From a valuation point of view, these stocks have come down and again from a valuation point of view, probably will remain down,” Wood said.

On the flip side, Wedbush analyst Dan Ives thinks losses for Chinese tech stocks could lead to gains in US mega-cap tech stocks, as investors rotate out of once popular names like Alibaba and Tencent in favor of Amazon, Apple, Microsoft, and Google.

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China is considering a rule change that would close a loophole allowing domestic firms to IPO overseas, report says

Did Chuxing app uber china
  • Chinese regulators are mulling rule changes that would block offshore listings by domestic companies, Bloomberg reported Wednesday.
  • The rule changes would close a loophole used by Chinese tech companies to launch IPOs in the US.
  • The report follows data security reviews on ride-hailing service Didi whose shares began trading in the US last week.
  • See more stories on Insider’s business page.

Authorities in China are considering a rule change that would allow them to stop domestic firms from listing publicly in overseas markets, according to a Bloomberg report. The loophole has previously been used by Chinese giants like Alibaba and Tencent to IPO in the US.

The report arrives after Chinese regulators initiated a data security review on ride-hailing service Didi and on two other companies after their shares recently began trading in the US equity market. China has been clamping down on technology companies over issues ranging from security to privacy to anti-competitive behavior.

The China Securities Regulatory Commission is spearheading the revisions. Once changed, the rules would require companies that are structured using a so-called Variable Interest Entity model to seek approval before going public in Hong Kong or the US. The overseas listings rules have been in place since 1994 and do not reference companies registered in places like the Cayman Islands, sources told Bloomberg.

The proposed rule changes in China could dent the business prospects of the Wall Street banks who work on the stock offerings. Chinese companies over the past 10 years have raised about $76 billion through first-time share sales in the US, the report said.

Didi shares that began trading in the US last week have plunged since China said it would conduct a cybersecurity review on the company. The stock on Tuesday dropped below the IPO price of $14 after Chinese authorities ordered app stores to remove Didi from their platforms after the Cyberspace Administration of China alleged violations in the collection and use of personal data.

Read more: Goldman Sachs names 30 stocks to buy for double-digit revenue growth in 2022 – and 4 sectors expected to beat the S&P 500’s sales growth

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Alibaba slides 3% as founder Jack Ma’s prolonged public absence raises eyebrows

Jack Ma
  • Alibaba fell as much as 3% on Monday as its founder Jack Ma’s prolonged absence from the public view raised eyebrows.
  • Ma has not been seen in public in more than two months and he was abruptly replaced as a judge on an African entrepreneurship TV show late last year.
  • Ma’s withdrawal from the public view comes as his companies Alibaba and Ant Group faces increased regulatory pressure from the Chinese government.
  • Visit Business Insider’s homepage for more stories.

Alibaba slid as much as 3% on Monday as its founder Jack Ma hasn’t been seen in public in more than two months.

Ma’s absence from the public view comes as the Chinese government has increased its regulatory pressure on Ant Group and Alibaba.

Ant Group’s planned November IPO was scrapped after Chinese authorities amped up its regulatory pressure on the fintech giant. The company is now back at the drawing board in terms of adopting significant regulations it must become compliant with, potentially altering its business model.

Alibaba has also faced an increase in regulatory pressures recently. A probe into the e-commerce giant’s seller exclusivity tactics was opened in December as the company is now being investigated by authorities for antitrust violations. 

Read more: GOLDMAN SACHS: Buy these 37 stocks that could earn you the strongest returns without taking on big risks in 2021 as the recovery and vaccine distribution get underway

The ramp up in regulatory pressure in Ma’s businesses came weeks after Ma criticized China’s financial regulatory system at a conference in Shanghai. Ma reportedly dismissed the China’s global financial regulations as “an old people’s club” and said that “we can’t use yesterday’s methods to regulate the future.”

Ma has not been seen in public in more than two months and he was abruptly replaced as a judge on an African entrepreneurship TV show he founded late last year, called Africa’s Business Heroes, according to a report from Yahoo Finance. 

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