To The Moon

Tiger Global's last announcement of its temporary departure from China should have been a milestone event. Yesterday, Ark's fund buying of Chinese stocks is another significant positive sign.

In past articles, I seldom call the bottom for Chinese stocks, but recently I think it’s a golden opportunity to bottom. Of course, foreign investors will change their views on China after March in 2023.

3 key questions about investment in China

(1) As for the global capital markets, the biggest issue is COVID-19 policy.

Opening is not a question of yes or no, but a question of time. The policy in China has a great deal of continuity, with the pace of opening up never driving backwards, which requires every step to be careful and cautious.

From my personal perspective, the full opening will come after March in 2023. The recent speech mentioned "by the virus mutation and winter or spring weather factors, the scope and scale about the spread of the pandemic may be further expanded. The pandemic prevention and control is still a harsh task ...", with the winter and spring  deliberately pointed out. The speech provides the evidence for my opinion.

As for capital markets, the gradual measures easing is better than sudden opening at short notice. Since ushered in full openness without any limitation, the capital market will turn to worry about other economic issues.

Japan is relatively late to relieve limitations in East Asia; and the full opening started in last month. The chart below is their epidemic map, showing the epidemic did rise quickly after the opening.

Photo from New York Times

(2)The secondly biggest issue is the Sino-US relation

The capital markets are most concerned about geopolitical risks in the China-U.S. relationship. Few month ago, Blinken said that geopolitical risks were very close, which raised the concern from U.S. capital markets. 

In contrast, Biden emphasized this time that he saw no geopolitical risk in the near future. Warren Buffet, an extraordinary investors, bought $Taiwan Semiconductor Manufacturing(TSM)$ yesterday, which also showed the confidence over the recent situation. I boldly speculate that the Democratic Party, which controls the Senate, may abolish the Taiwan Relations Act.

(3)The last one is economic and trade relations between the two countries

Biden stressed that,

1. there is no Cold War

2. it is competition not conflict.

I believe that any Democratic victory in this midterm election will solidify this principle for Biden. Possibly, there will be certain measures introduced by the United States to restrict China in the future, but this does not mean that the relationship between the two countries will deteriorate.

ARK's buying of Chinese stocks is a landmark positive event

I have always stressed that it would be a landmark for ARK Fund to add position in Chinese company stocks.

Just yesterday, ARK Fund bought 80,000 shares of $XPeng Inc.(XPEV)$ , which is the first inflow of funds into Chinese company stocks in nearly six months. The chart below shows the trend of the ARK fund's  capital position of Chinese stocks over the past 6 months.

What deserved to mention was the ARK fund buying a whole number of 80,000 shares - a whole number means that the fund bought XPEV just for this stock, not for rebalance (if it was rebalance, then the number of shares would have been the odd).

China Equity Inflows/Outflows from ARK Fund over the last 6 months ($ 10 thousand):

Data from ARK; compiled by Capital_insights

Currently, Chinese investors take a large amount of the funds buying into Chinese stocks. It will take a long time to develop foreign interest about Chinese company stocks.

That's why I think it will be a good opportunity until March in 2023. As for after March, investors who don't understand China will find that China is different from what they think.

$ARKK(ARKK)$  $XPeng Inc.(XPEV)$  $Taiwan Semiconductor Manufacturing(TSM)$