8 Chinese Stocks in Cathie Wood’s Portfolio

In this article, we discuss the 8 Chinese stocks in Cathie Wood’s portfolio.

2021 was a depressing year for Chinese stocks. Those in power in Beijing tightened regulations and cracked down on excessive wealth, anti-competitive behavior, and conglomerate monopolies. The NASDAQ Golden Dragon China Index dropped 60% in 2021, Alibaba Group Holding Limited (NYSE:BABA) dropped 58% from recent highs, and Pinduoduo Inc. (NASDAQ:PDD) fell 73% as the market reacted to the uncertain regulatory environment. Much on the priority list of China now pertains to their vision of ‘Common Prosperity’, which seeks to re-engineer Chinese society to eradicate the burgeoning wealth gap. Analysts feel that the Chinese government is willing to risk these market losses and volatility in order to reorganize society on a more equal footing for all citizens.

Cathie Wood spoke about China after scaling back her holdings in Chinese stocks dramatically while retaining stocks she believes are trying to get on the ‘right’ side of Beijing. She believes investors shouldn’t give up on China, as its focus on innovation and entrepreneurship deserves recognition in the long term. The portfolio manager for Fidelity’s China Focus Fund, Jing Ning talked positively about China in her 2022 outlook note in December:

“China may outperform other markets in 2022, given its easing cycle has already started. Valuations are more reasonable, and there is still low ownership among global investors,”

BlackRock’s chief China economist Yu Song also mentioned a promising outlook on Chinese stocks in a 2022 outlook report published in December:

“We recognise the [regulatory] risks, yet see current valuations as offering eligible investors adequate compensation for them. We stay moderately positive on Chinese equities as we see a shift to a slightly easier policy. We expect the regulatory clampdown to last but not intensify.”

Cathie Wood of ARK Investment Management

Our Methodology

13F filings for the third quarter of 2021 were used to compile the following list. Hedge fund sentiment around each stock was derived using Insider Monkey’s database of 867 elite hedge funds.

8 Chinese Stocks in Cathie Wood’s Portfolio

8. Yeahka Limited (OTC:YHEKF)

ARK Investment Management’s Stake Value: $189,000

Percentage of ARK Investment Management’s 13F Portfolio: 0%

Number of Hedge Fund Holders: N/A

As of the third quarter of 2021, Cathie Wood’s ARK Investment Management reported owning approximately 58,000 shares in Yeahka Limited (OTC:YHEKF). In Q2, Wood owned 8.63 million shares in the Chinese company and has reduced her stake by 99.32% over the previous quarter.

Yeahka Limited (YHEKF) is based in Shenzhen, China, and deals in the provision of payment and business services to consumers and merchants. It was founded in 2011.

Along with Tesla, Inc. (NASDAQ:TSLA), Twitter, Inc. (NYSE:TWTR), and Spotify Technology S.A. (NYSE:SPOT), Yeahka Limited (OTC:YHEKF) is a top stock in the portfolio of Cathie Wood.

7. BYD Company Limited (OTC:BYDDF)

ARK Investment Management’s Stake Value: $21.61 million

Percentage of ARK Investment Management’s 13F Portfolio: 0.05%

Number of Hedge Fund Holders: 2 

BYD Company Limited (OTC:BYDDF) deals in the production and sale of automobiles and is based in Shenzhen, China. ARK Investment Management disclosed owning 346,600 shares in the company at the close of the third quarter, valued at $21.61 million. This is a reduction in stake of 60% over the previous quarter, where the fund held 861,000 shares in the Chinese company.

BYD Company Limited (OTC:BYDDF) reported sales of 93,945 electric vehicles in December 2021, which was an increase of 225.7% year on year, despite the shutdown of one of the company’s production sites due to a Covid-19 outbreak in Xi’an, China.

As of the third quarter, 2 out of 867 elite hedge funds tracked by Insider Monkey reported owning stakes in BYD Company Limited (OTC:BYDDF), holding stakes worth $22.35 million.

6. JD Logistics, Inc. (OTC:JDLGF)

ARK Investment Management’s Stake Value: $22.54 million

Percentage of ARK Investment Management’s 13F Portfolio: 0.05%

Number of Hedge Fund Holders: N/A

JD Logistics, Inc. (OTC:JDLGF) is a Beijing-based company that provides supply chain solutions and logistics services. Cathie Wood’s ARK Investment Management owns 5.4 million shares in JD Logistics, Inc. (OTC:JDLGF) at the end of the third quarter, worth $22.54 million. This is an increase of 2% over the previous quarter where Wood held 5.3 million shares in the company.

On December 30, Jefferies analyst Thomas Chong initiated coverage of JD Logistics, Inc. (OTC:JDLGF) with a ‘Buy’ rating and a price target of HK$41, noting that the company is a “rapid growth and margin expansion story” in a supply chain logistics market that has significant potential.

In addition to Tesla, Inc. (NASDAQ:TSLA), Twitter, Inc. (NYSE:TWTR) and Spotify Technology S.A. (NYSE:SPOT), JD Logistics, Inc. (OTC:JDLGF) is an exciting stock in the portfolio of Cathie Wood’s ARK Investment Management.

5. Baidu, Inc. (NASDAQ:BIDU)

ARK Investment Management’s Stake Value: $36.11 million

Percentage of ARK Investment Management’s 13F Portfolio: 0.08%

Number of Hedge Fund Holders: 44

Baidu, Inc. (NASDAQ:BIDU) is a tech giant also known as the Chinese ‘Google’, being the most popular search engine tool in China. 44 hedge funds from Insider Monkey’s database reported owning stakes in Baidu, Inc. (NASDAQ:BIDU) at the close of the third quarter, down from 59 in the previous quarter. Wood’s ARK Investment Management owns approximately 235,000 shares in the tech firm at the close of September, down from 680,000 shares at the end of June.

Investment firm Ariel Investments talked about Baidu, Inc. (NASDAQ:BIDU) in its third-quarter investor letter. Here’s what the fund said:

“When we have such a high level of conviction for a company it is not uncommon for us to own it in size across our portfolios. Such is the case with technology giant Baidu, whose leading search engine has been dubbed the “Google of China.” This quarter shares sold off in sympathy with the Chinese internet sector as investors were rattled by the government’s sweeping regulatory crackdown intended to promote “common prosperity” by easing wealth inequality. While we recognize the greater political risk of investing in emerging markets such as China and incorporate an appropriately higher risk premium in the discount rate in our valuation models, we believe Baidu’s business strategy is aligned with national policies and prioritie and is therefore not adversely impacted unlike some other
players in the internet sector who are in the eye of the storm.

Indeed, the Chinese government recognizes Baidu’s large, upfront investments in many next-generation artificial intelligence (AI) technologies and hails it as a national champion. For example, the company’s Advanced Driving Support System (ADAS), Apollo, has twice as much data on miles driven than any other initiative in the world, giving Baidu (and China) a large lead in the global AI arms race. In addition, Baidu’s cloud offering touts highly differentiated Platform as a Service (PaaS) features and capabilities for a demanding enterprise customer base. While these initiatives are a temporary drag on margins and require long-term execution, their success will bolster China’s “dual circulation” strategy aimed at spurring domestic demand, innovation and self-reliance.”

4. Tencent Holdings Limited (OTC:TCEHY)

ARK Investment Management’s Stake Value: $43.69 million

Percentage of ARK Investment Management’s 13F Portfolio: 0.1%

Number of Hedge Fund Holders: 4

Tencent Holdings Limited (OTC:TCEHY) is a Chinese tech giant that operates through its segments: Value-Added Services, FinTech and Business Services, Online Advertising, and Others.

As of the third quarter, ARK Investment Management reported owning 731,000 shares in Tencent Holdings Limited (OTC:TCEHY), valued at $43.69 million which represents 0.1% of the fund’s total portfolio. This is a decrease of 88% in stake over the previous quarter, where the fund held 6 million shares in the company.

On November 2, Barclays analyst Jiong Shao initiated coverage of Tencent Holdings Limited (OTC:TCEHY) with an ‘Overweight’ rating and an $84 price target. Shao assessed that China would continue to attract investment being the second-largest economy in the world, and its aim is to make its homegrown tech companies stronger.

Niu Technologies (NASDAQ:NIU) is a Beijing-based company that deals in the manufacture and sale of smart electric scooters and motorcycles, with a presence in approximately 199 Chinese cities and 46 countries around the globe. As of the third quarter, 12 hedge funds reported bullish bets on Niu Technologies (NASDAQ:NIU), as compared to 13 hedge funds in the preceding quarter. In Q3 2021, ARK Investment Management held 2.43 million shares of the company valued at $56.41 million, up 7% over the previous quarter where it held 2.29 million shares of the company.

In November, Bank of America analyst Paul Dewberry initiated coverage of Niu Technologies (NASDAQ:NIU) with a ‘Buy’ rating and a price target of $31, assessing that the company’s increasing international sales, along with new products and industry-leading electric initiatives, should bring robust revenue and profit growth.

2. Pinduoduo Inc. (NASDAQ:PDD)

ARK Investment Management’s Stake Value: $59.56 million

Percentage of ARK Investment Management’s 13F Portfolio: 0.14%

Number of Hedge Fund Holders: 49

Pinduoduo Inc. (NASDAQ:PDD) is a Chinese technology company that operates an e-commerce platform through its Pinduoduo mobile app. Cathie Wood owns a $59.56 million stake in the company, which accounts for 0.14% of her overall portfolio.

In December, Macquarie analyst Ellie Jiang resumed coverage of Pinduoduo Inc. (NASDAQ:PDD) with an ‘Outperform’ rating and a $95 price target.

UK-based investment firm Baillie Gifford mentioned Pinduoduo Inc. (NASDAQ:PDD) in its second-quarter 2021 investor letter. Here’s what the fund said:

“As many countries enjoy a relaxation of Covid restrictions, Mr Market is focussed on short-term beneficiaries of ‘the pleasure after the plague’. There are
interesting parallels with the Roaring 20s here, but to our minds, they extend beyond post-pandemic hedonism. Much of the new wealth created in the 1920s was patchily distributed and accompanied by a pervasive sense that the older generation had let down younger people. In 1920, John F. Carter, an irate 23-year-old wrote “the older generation had certainly pretty well ruined this world before passing it on to us. We have been forced to live in an atmosphere of ‘tomorrow we die,’ and so, naturally, we drank and were merry.”

In a similar vein, some of the greatest Growth opportunities are materialising from the companies that are shifting humankind towards more sustainable ways of consuming by driving efficiencies and eliminating surplus. Pinduoduo’s ‘farm to table’ platform is one example – cutting out huge waste in farm produce and short circuiting layers of infrastructure by matching Chinese food supply and demand through a group buying model. In a similar vein, Meituan is well on the way to developing China’s primary ‘Software as a Service’ ecosystem for food distribution which we believe has a strong chance of replacing wasteful wet markets as the primary channel for transacting in produce.

Pinduoduo’s share price pulled back following news that Chinese regulators are investigating possible anti-competitive activities by the country’s large online companies. However, Pinduoduo appears well placed to navigate such regulatory scrutiny in the long-term, helped in part by its community buying business model that benefits consumers, manufacturers and farmers alike. Its business fundamentals are stellar– the company remains the largest Chinese e-commerce platform, with over 820 million annual active users (surpassing Alibaba and JD.com), while revenue growth increased by 239% over the previous year. “

1. JD.com, Inc. (NASDAQ:JD)

ARK Investment Management’s Stake Value: $173.35 million

Percentage of ARK Investment Management’s 13F Portfolio: 0.41%

Number of Hedge Fund Holders: 66

JD.com, Inc. (NASDAQ:JD) ranks first on the list of Chinese stocks in Cathie Wood’s portfolio, with approximately 2.4 million shares valued at $173.35 million, amounting to a 0.41% slice of her overall holdings. The company is a Chinese e-commerce giant which also specializes in AI and robotics and has a strategic cooperation agreement with Tencent Holdings Limited (TCEHY).

On December 7, Macquarie analyst Ellie Jiang resumed coverage of JD.com, Inc. (NASDAQ:JD), setting an ‘Outperform’ rating and a $112 price target. The firm’s analyst noted that the company displays strong competencies in its supply chain and logistics infrastructure, and looks set to continue its growth momentum heading into 2022.

Investment firm Argosy Investors talked about many stocks in its Q3 2021 investor letter, and JD.com, Inc. (NASDAQ:JD) was one of them. Here’s what the fund said:

“We sold JD as a result of the furor over Chinese stocks during the quarter. We had been concerned about China’s lack of respect for investor rights for some time, and Beijing has become significantly more aggressive in asserting itself of late. In addition, the legal structure Chinese companies use to come public in the U.S., a Cayman Islands shell corporation leaves American investors with an unsure path to recovering value should these companies cease to trade on U.S. exchanges. Because of the uncertainty, we exited our position in JD completely. We still love JD’s long-term prospects, but we cannot estimate the legal/regulatory risk associated with these companies anymore. More broadly, we are freeing up cash for some other positions we already own which have declined in this market, and after additional review, remain attractive.”

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