It’s been a whiplash 2021 for Chinese tech stocks.
The Nasdaq Golden Dragon China Index, which tracks 98 of the biggest Chinese companies listed in the U.S., hit a record high of 20,688 on Feb. 12. But the index has been walloped since then on concerns that China’s tech sector could soon be facing greater scrutiny and tighter regulations at the hands of the Chinese government.
Cathie Wood, founder of Ark Invest, one of the planet’s most hyped investment management firms, was one of the many investors to dump her Chinese stocks in late July.
Wood has since returned to the Chinese tech space, bolstering her company's holdings with several notable Chinese stocks.
Let’s see which stocks received the ace investor's stamp of approval this time around.
JD.com (JD)
Wood made multiple purchases of JD.com stock in August, nabbing 59,000 shares of the e-commerce company to the Ark Fintech Innovation ETF (ARKF) and just under 165,000 for Ark’s Autonomous Technology and Robotics ETF (ARKQ).
"I'm not pessimistic about China in the longer run because I think they're a very entrepreneurial society," Wood told Bloomberg. "Sure, the government is putting more rules and regulations in, but I don't think the government wants to stop growth and progress at all."
It’s an interesting take, considering Wood said during a recent Ark webinar with investors that Chinese stocks “probably will remain down."
But Wood obviously sees value in JD.com after the company reported a 26% increase in revenue and a 27% increase in its user base during the second quarter of 2021. It’s stock has risen more than 12% in the past month.
As one of the largest retailers in China, JD.com provides companies access to one of the world’s largest cohorts of consumers. The firm’s revenue streams are bolstered by offering marketing, analytics, logistics and warehousing and financing services.
Tencent (TCEHY)
On Aug. 16, Ark dumped more than 171,000 shares in Chinese tech conglomerate Tencent. A little more than a week later, Wood snapped up almost 235,000 shares in the company and added them to ARKF. Tencent now makes up 1.24% of ARKF’s holdings.
It’s been a rough few months for Tencent. The company was recently fined multiple times by the Chinese government for anti-competitive behavior and saw its share price fall by more than 30% in the last six months. Company president Martin Lau recently told investors that he expects government regulators to be quite busy cracking down on the country’s tech sector.
“It will be coming from all different regulator entities,” Lau said during an Aug. 18 call. “We think that there will be quite a few [new measures] coming out.”
But Tencent’s exposure to multiple growth industries, including video games, cloud computing and artificial intelligence, make it an intriguing bet for funds like ARKF. Impressive second quarter results — a year over year increase in net profit of 29%, a rise in fintech and business services revenue of 40% — brought investors flocking back to buy Tencent on the dip.
Since Aug. 19, Tencent stock is up almost 18%.
Pinduoduo (PDD)
The largest agriculture-focused tech platform in China, Pinduoduo currently connects about 12 million farmers and distributors directly to consumers. The company recently pledged to invest approximately $1.5 billion into advancing agricultural technology for the country’s farmers.
Between Pinduoduo’s business model and socially-conscious goals, Ark Invest appears to see a bright future for the company. In four transactions at the end of August, Ark added almost 208,000 shares to ARKF.
“We believe that Pinduoduo's important role in modernizing China’s agriculture industry and alleviating poverty across Tier 2 and 3 cities is improving its relationship with the Chinese government relative to its competition,” Ark wrote in a note.
With global demand for food on the rise, it makes sense that Wood would expect an agricultural play to pay off over the long run. But Ark’s investment in Pinduoduo is already paying off: The company’s stock is up almost 16% since Aug. 3.
Unleash your inner Cathie
Whether you see Chinese tech stocks as a short-term value play or a long-term investment in a sector too crucial to be over-regulated, you’ll need to get started somewhere.
You’re probably already familiar with popular no-fee investment platforms, but there are several other digital platforms you can use to put your money to work.
One even allows you to invest in a diversified portfolio using little more than the “spare change” left over from your everyday purchases.
However you choose to invest your money, especially when it comes to volatile assets like Chinese tech stocks, just make sure you’re making an informed decision — one you can afford — and not just chasing the next flash in the pan.