Cathie Wood's Ark Jumps Back Into China

getting back into it. Talked to us a little bit about your thinking right here, because it was just last month that you pulled back on your exposure and we're selling what changed. Sure, Yes, uh so, thank you for inviting me, Carol. Very happy to be with you again.

Um So, we had been pulling out of China. We started last November actually after after the debacle around the ant group I p O and really the banishment it seems of Jack Ma, and we saw increasing uh racing signs that the government was going to get tough on on companies we didn't know exact and and companies which were more than unicorns. They had exploded onto the scene and they had become so powerful, as had their leaders,

that they almost seemed to be threatening the government. At least that seemed to be our take on the government's response. So we were a bit cautious pulled away, and in fact our flagship fund Um had moved out of most Chinese stocks. I think we were out probably late April, late May, somewhere around there. It might have been a little bit later. Gradually, you never know of the time.

I think the online education Um really nationalization there, uh was UM was a real valuation killer for the market. So I think that the market is going to be under pressure from evaluation point of view from a lot for a long time now, because that that sort of thing was so unexpected, uh even even from those of us who saw the government tightening its grip on on

the country. Uh So, But what we have done, we did after this last blood bath in the stocks, we did, uh try and sort through, Okay, which companies are are doing things the government likes and what we're seeing those that are catering to tiers three, tier four cities, logistics groceries. So you've seen us by j D dot Com. J D Logistics is a big part of j D dot Com. I think they owned seventy of it. Uh So that's probably been our biggest purchase as well as some pin

Doo do for the same reason. But if you were to look at what we were doing in those portfolios, we were really whopping them out of other names that we think are are going to be continue to be in harm's way or certainly under government pressure, like the Ali Baba's for example, which you've been selling. Correct. Yes, So in terms of the recent crackdowns cathy that we've seen, does it longer term generally making more pessimistic or optimistic

about investing in Chinese stocks? What's the call here? You're a longer term investor, So what's the longer term play here? Well, if you think about what China is doing, they're doing many of the same things our own government and other governments around the world are doing. Uh, you know, they're most governments are concerned about data privacy, uh, national security, and even even concerned uh in some ways about the

impact of social media on students and so forth. So, but we just haven't We don't have the kind of central, centrally controlled government that can you know, wipe those those activities and risks off the face of the earth as much as possible. That's just not who we are. We do know that China wants to wants to be number one in the world and economically certainly, and one of the ways they want to do it is with innovation, with technology. They want to bring more of it back

into their country. UH. Certainly the manufacturing side, UH, semiconductors being one of the most important areas in which they're investing. They haven't gotten it right. I've watched them invest in semiconductors since the early nineties, UH, where they brought in a lot of Taiwan semiconductor talent, and they just haven't been able to crack the code. They don't want to alienate the global investors, do they are. How important is it that global investors stay invested in those Chinese stocks

and companies. Well, one of the things we've been learning, as you know, as Chinese UH citizens have gone out into the rest of the world, they've they've actually come back many times when they come to New York City or other places in the world where the infrastructure is in need of an overhaul, they'll come back to go back to their country and say, hey, we have it

pretty good here. I've heard that from a number of younger people and so I think China has been able to stir up a little bit more of a nationalistic hey we haven't kind of good here and um. At the same time, there is uh the risk of social and rests um because of the rich and the not so rich or the outright poor. So they are definitely focused on that. The last thing, the biggest risk China would have on its hands, I think is a revolution,

and it could be around that. I think that's why it's stepped on on this kind of mega cap stock as aggressively as it has. It realized it had just mushroomed gotten out of control, certainly government control, and now they're coming back to a certain little control. So more pessimistic about China long term or more optimistic. I'm more optimistic. I'm kind of turn it around a little bit. I'm not pessimistic about China longer run because I think, um,

you know, they're very entrepreneurial society. Sure, the government is um putting more rules and regulations in, but I don't think the government wants to stop growth and progress at all. What I will say though, is I'm a little more optimistic about the United States and other economies. So it's more of a relative sort of thing. The more insular China becomes actually the less competitive in many ways. It will be because artificial intelligence. Sure, you can have all

kinds of data about your own population China or Chinese government. Uh, but in order to compete in the world, you're you're going to need information everywhere. And I think governments around the world are a little suspicious, suspicious of what is happening now in China. What do you think the investment environment will look like in China in five years from now compared to what we're seeing today? And are the Because you know, investors, everyone follows what you're doing, So

are you positioning for the five years from now? Sure, we have a five year investment time horizon. I think we're consolidating into the few names and these are not in our flagship fund These are in other of our more specialized funds. So we're consolidating our positions. So we've taken it down, continued to take it down, but consolidating more towards with higher positions in names like I described, they're uh, you know, really focused on pier three, tier

four groceries, logistics, uh, manufacturing in China. So we'll we'll stick with those while we wait and see. You know how the government wants to play this if you think about it, UM, One of the reasons this may be going on now is UH, China saw what the Trump administration was like. UH, and the Biden administration has been just as tough in some ways, but perhaps not as tough as a more conservative or hawkish administration would have been around Hong Kong. And so we've got the mid

term elections UH in November next year. So this is their window to do what they want to do, because I do believe they're not They're feeling like, um, this is a little bit of a window. And if the more hawkish administration gets in later, then um, you know they will have want to have done whatever it is

that makes sense. Hey, One more question on China are Ben Baine, who follows the sec S down with Gary Gainstler, chair of the Securities in Exchange Commission here in the US, and he is coming out with the SEC demanding all Chinese firms reveal more about investor risks. Basically, they're looking for transparency and this requirement applies to companies already trading here in the United States. What are your thoughts about

this good step? Is it going far enough? I mean, Chinese companies haven't been great on complying with UH kind of opening up things for the past two decades. What doesn't need to change? Have we been too patient already? I think I think there's been so much opportunity in China from from such a low base, UM that a lot of investors took more risks when we were at a lower base and the growth growth was going to be explosive UH, and they were willing to do that.

But I do believe with investor feedback UH that the SEC is saying, wait a minute, this is a more mature economy. Transparency is becoming more important now the growth growth is not going cover all fins, right, It isn't as explosive anymore. And I actually think it's a very good move. I don't know if China is going to comply, which means within I think it's a three year timeframe. UH. Companies here would have to do list so that is a risk and we are thinking about that as well.

All Right, gotta ask about some other names that you've been buying, not just Chinese A d R S. I'm gonna throw out some number some names, uh Soaring Eagle Acquisition, the blank check company, far Fetch, the online retailer Palentiner, Fightser, uh, Semaphore. Are some too simple holdings? Are Dave Wilson highlighted it a couple of weeks ago. These are names that you've been buying. Highlight a couple of them, and you're thinking, um, well,

uh it's a lot, yes, but well too simple. The which has it was just back and uh it fell to earth and we were able to get a very nice sized position even in our flagship fund. We are looking for autonomous plays, and autonomous trucking holds incredible promise. Uh. We believe that autonomous trucking will be able to deliver freight uh less expensively than rail does. Now. Now, if

you think about it, human driven truck trucks. Transporting streight by human driven trucks costs twelve cents per ton mile. That's not the way a lot of people measure it, but we think it levels the playing field. Rail is four cents per ton miles, and we believe autonomous trucks will be three cents per ton miles. So we believe that half of the freight in the United States that is delivered by rail today has an opportunity to shift over to autonomous trucks in the future. It's it's a

huge opera tunity. Um, let's see some of the uh spac names. Uh that that um you have you read out? Yes? Uh, well, uh, we're we're getting into um areas within the genomic revolution first, very importantly into proteomics, a huge new field. Um. We've we've uh been spending a lot of research dollars on d n A and r n A, but RNA is uh really the messaging for proteins, which actually are the earliest where we see the earliest manifestation of disease. So

it's going to be a huge new space. And so some of the names you see coming into the portfolios, um are those and um, you're gonna have to uh read some of the other ones. Well, I think pal Palateers one in next folks are emailing me and said, what you know, have Kathy talked about Palenteer and her recent buy sure palent here. Uh, we believe that Palentier has the opportunity to userve a lot of aws as your Google compute over time. It is pushing artificial intelligence

out to the edge. And palent Here, because I think it's roughly sixty of its business has been with the government, much of that in intelligence agencies. Palent Here is um we believe today UM uh using technologies that we will find out about five years from now. They we believe are so far ahead because of their expertise uh in intelligence UH that is going to accrue to the company's benefit in the commercial space as well. So they've entered I think a year ago of their business was with

the government. Today it's closer to sixty uh and so we've got um all of the commercial side to go. So I don't think people understand how advanced palent Here is technologically and how it's platform technologies pushing a out to the edge are going to are going to really take share over time from the more centralized services. It's interesting that we're thinking about them that way now in the cloud. So one other name I've got to bring

up with you. I'd be remiss not to you, And I've talked about it a lot elon Musk and Tesla, and I think we're all still trying to get our head a little bit around what happened on AI D and this human humanoid robot that he talked about to take over boring work. How do you factor in? I mean, Elon is somebody who throws out some really creative ideas NonStop. How does that or what? What did you take away

from that presentation? Yes? What I what I took away, especially in reading uh many many of the articles about it, is that, um there are not many people who are deeply, deeply involved with artificial intelligence, and that is who that day was for. They were trying to attract AI talent to tackle the most difficult and probably most transformational opportunity, certainly in terms of transportation, all kinds of transportation, not just cars and trucks, but ultimately drones and plays um

uh using artificial intelligence. So I think the press took away see this was nothing. I was kind of entertainment with this robot. But there they go, changing the subject again. If anyone who was who has been steeped in an AI and and wants to take up the challenge that they're offering, uh got um got uh a tremendous perspective on how far ahead Tesla is relative to almost anyone else. I would say Google is is is up there, but in in many ways in autonomous transportation, UH, Tesla is

is um U in the lead. So I don't think it was the AI day was not for investors. It was going to go over their heads most of it um and and yet for those who tuned in, he offered a little bit of entertainment. I suppose our intelligence analysts were blown away, and in fact, if you look on our website you'll see are we We put out an newsletter every Monday morning and we summarized some of the more important takeaways we had UH from that day.

So it sounds like no doubt about you're staying with Tesla. You're still in on the company, in on the strategy, without a doubt, without a doubt every passing day, especially the more we learn about their AI expertise and um how they're really driving this space, so to speak, much

faster than I think anyone else is. Right now, we believe they have the pole position too, and we have increased our our estimate here in the next ten years, we think UH, the autonomous taxi network opportunity in the US will be eleven to ten trillion dollars from nothing today. Think about that eleven to our economy. Now it's not just this economy. That eleven to twelve is a global opportunity.

But just to give you a sense of the size of that opportunity, our autonomy is twenty one two trillion dollars. This opportunity alone is twelve trillion. In ten years, the market will start to recognize it, and we think we will in the marketplace in the middle of this decade, the market caps will probably be scaling towards the three

to five trillion dollar range for nothing. So even with you know, the chip shortage is impacting the auto industry tests, you know, you still remain steadfast on Tesla despite those chip shortages that are impacting the overall industry. You know, it's very interesting. On the last quarterly called uh test, Elon himself said, you know, the chip shortage might be lessening here. I know we're hearing uh GM and others,

but I have thrown out another thought out there. You know, auto sales have dropped from eighteen and a half million units, this is just the US at an annual rate in April to fourteen point seven five. I do not believe that is only because of a chip shortage. I think it is the beginning of a massive transformation towards electric and so a lot of individuals are not buying cars because they know anything they buy now is going to depreciate much more quickly now that electric vehicles are taking

off and they are growing exponentially. So I think something else is going on. And it was really interesting on the Magna call. I listened in when there's controversy like this to these calls. UH one analyst to ask the CEO, Hey, did you were you are surprised that GM changed its

forecast within one month? We're used this price as we are, We're And Magna said, yes, something else is going on out there, and I do believe it is the beginning of a massive transition away from the intern all combustion engine to electric. So no, I'm not concerned about the chip shortage for for Tesla. So even after I talked to you for twenty minutes, I still have twenty minutes thirty minutes more of questions, but I've got to wrap up. We've only got about a minute, and I so appreciate

your time here. I know you recently talked with another member of the business news community. You said, there's no way that we are in a bubble. You feel that way about the markets, which is specifically when we look at the tech space, we've seen quite a run up. Not a bubble at all, Not a bubble at all. I can tell you the differences in a bubble, and I was in the last one. In that bubble, our strategy would have been cheered on. People would have been

clamoring to get in. And sure we've had We've retained our assets beautifully. But the February draw down from mid februarye mid May uh was quite a big one. It was for our flagship fund. I'm very happy that happened because we've tested our retention here. Our clients really know what they own, and we've set the stage for the next leg up. We have a lot of fear in

the market. You hear more endless. If you look at the ratings by and Sell, you can look at Tesla's ratings, they're probably even buy and sell by Now maybe it's a little more to the cell side. In a bubble, it would be bye bye, bye bye bye. You get a lot of fear from the street and we get a lot of incoming questions associated with risk, which we should get and are happy to answer. Uh. We get more questions about risk than opportunity. In a bubble, you

get more questions about opportunity than risk. All Right, Gonna leave it on that note. And I know when you talk about the names the companies, you always often talk about your research team that is looking into these companies. Uh. And I know you credit them a lot with the analysis they do as you guys invest in your five different platforms. So thank you so much, Kathy, thanks so much for giving us some time again here on Bloomberg,

Bloomberg Radio, Bloomberg TV. Be well. Kathy Wood, of course, the CEO, founder and chief investment officer of ARC Invest, joining us on the phone from Connecticut. You're listening to Bloomberg Radio, Bloomberg Business Week, and this is Bloomberg