Cathie Wood on China

I listened to a Bloomberg interview last week in which Cathie Wood, founder of the ARK fund complex, gave her take on the ongoing Chinese crackdown on capitalist tendencies in that country. Measures have ranged from repudiating its agreement with the UK, half way through its term, to grant Hong Kong fifty years as a Special Administrative Region, free from direct political control by the mainland, to punitive measures taken against ultra-wealthy Chinese tech entrepreneurs and their companies.

The latter group were of particular focus, given Woods’ very recent decision to eliminate her holdings of mainland stocks, like Alibaba and Tencent, whose owners had run afoul of Beijing. Her new strategy is, unsurprisingly, to pick through the Chinese stock market carnage to find firms whose clear domestic social purpose will likely insulate them from Premier Xi’s wrath.

The way Wood chose her words suggests she was relatively late in figuring out what was going on. But that’s not what bothered me.

Wood went out of her way in the interview to suggest that the trigger for Xi’s actions was the inauguration of President Biden. This despite the fact that his repudiation of the joint UK-China handover agreement came in early 2019. Also, Jack Ma’s threat to use Ant Financial to radically undermine the Chinese banking system–and his subsequent disappearance–came during the Trump administration. His reappearance came at the beginning of Biden’s.

She also observed that Chinese citizens were tending to leave the US to return to China, suggesting a period of disengagement with the rest of the globe. Her explanation? …our Third-World infrastructure.

Yes, the US has neglected communications and transport infrastructure for decades, and, yes, my Chinese acquaintances remark it’s much easier to do US business from, say, Taiwan. But Wood made no mention of other important causes: the health threat posed in the US by the bungled covid response or Trump’s anti-Chinese rhetoric that spawned a wave of anti-Asian violence, and the Stop Asian Hate movement; and the budding tech war begun by Trump’s attack on Huawei, which has reignited Beijing’s interest in creating its own chip domestic manufacturing capabilities.

To my mind, the white racism and the inject-yourself-with-bleach covid advice are deeply wrong. It’s possible, though, that no matter how ill thought out the Trump initiative, the denial of US intellectual property to China will do some good. My suspicion is that a lot depends on how strong the domestic anti-science movement remains and how long we continue to starve our schools.

When will it be safe to invest in China? …during the next Republican administration, when China will fear the US again.

my take

I have two thoughts about the interview I mention above:

–the view that the Trump presidency has somehow been a good thing for the US economically and that the rest of the world recognizes this is, I think, both deeply mistaken and an opinion held by a significant minority of Americans.

I remember Wood justifying her personal support for Trump on one occasion by saying she approved of his economics (as opposed to the rest of him), which I see as like my high school German teacher opining that Hitler wasn’t so bad because he gave Germany the Volkswagen. As long as this misapprehension (again, my view) doesn’t seep into the portfolio, it’s not a performance problem per se.

–there’s also a typically American view that American culture is the goal toward which every other country is, consciously or not, striving. Think: the Noam Chomsky view that English is the Ur-language, from which all others stem; or the neoconservative view that in the body of everyone in the Middle East there beats the heart of a Republican waiting to be freed by our invading troops.

Countries of all stripes share this kind of idea, except, of course, that their ideal is not American culture but the German, French, British, Japanese, Chinese…one, depending on where you are.

Thirty+ years of investing in markets outside the US have reinforced for me again and again that it’s a ground-level investing mistake to assume one’s own cultural values hold for any other country. Almost as bad is assuming that the stock market in a foreign country runs according to the same principles that the home country’s does.

To my mind, Wood not realizing this is an indication of her relative lack of portfolio management experience. How worried am I about this? Not enough to sell any of the significant (for me) amount of ARK EFT shares I own, but enough not to add to my ARK positions other than ARKF and ARKG.

2 responses

  1. Exactly what “white racism” are you referring to? Man I have read your blog for a couple years now. You make some good points but you turn me off more and more as you interject more of your subjective biasis into what I thought was supposed to be a objective blog about capital and global markets. I unfortunately will no longer be subscribing to your posts. I wish you well.

  2. “it’s a ground-level investing mistake to assume one’s own cultural values hold for any other country.” Wow, what a great insight. I’ll definitely have to write that down somewhere.

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