Over the past few weeks, kathy wood, the ceo and cio of arkhanvest has exited out of almost all of her chinese holdings. She recently sold over 300 million dollars of jd 40 million dollars of kanjun 110 million dollars of pin duo, duo 48 million dollars of byd. Auto 165 million dollars of baidu and over 650 million dollars of tencent. This move essentially reversed ark's decision to purchase chinese stocks earlier this year in february.

On the contrary, many valley investors are taking advantage of the buying opportunity. Warren buffett's, right-hand man, charlie munger, ray dalio. The cio of the largest hedge fund in the world and manish pabrai all believe that chinese stocks are at a major discount right now. This leaves one question for us: investors, which side should we be on in this video? We will go in depth on both sides of the debate and come to a conclusion on the heated clash in chinese stocks.

Welcome to cash gains academy, if you're new to the channel, please consider subscribing for more content like this and let's get right into it in arc, invest july. Market webinar kathy would explain how we've already seen a valuation reset in chinese stocks due to a few reasons. The core essence of capitalism is that, through a desire to generate wealth, productivity and innovation are created with china's new regulations on successful companies like deity and and tencent. Kathy believes that the incentive for success has diminished in china and because of this kathy thinks that less innovation and advancement will occur over the long term.

You know, one thing that i think is happening is a revaluation because it does seem with ant. As the first example that many i i would imagine, don't don't know anyone personally, but just looking at the situation that the incentives to uh become you know. Incredibly, successful in in china are diminishing somewhat now that uh the government is expressing concern, in addition to lowered incentives, many believe that biden would be more lenient on china than trump, but so far we've seen the biden administration continue to be harsh on china. In fact, most recently, a chinese state-run media outlet accused biden of threatening war.

The result of the rising tensions between the u.s and china is the possibility for strict business restrictions for foreign companies, for example, alibaba is rapidly expanding its aliexpress marketplace into europe. However, if there are some security concerns, then this expansion may not occur as expected. Kathy sees this possibility as a major detriment to future growth. So again, there is in terms of these very large mega cap companies being able to scale to other parts of the world.

I have a feeling there are some national security considerations that might either slow them down or stop them. The last reason for ark selling out of china is because of short-term valuation concerns. Kathy wood often focuses on long-term movements, but she also looks at short-term trends and actively trades them in terms of chinese stocks. Katy believes that valuations will remain low for a while, because there are no short-term regulatory catalysts.

Therefore, it is possible that we see kathy wood and arkhan vest buy back in the chinese stocks in the future. I would say from a valuation point of view, these stocks have come down and again from a valuation point of view, probably will remain down. Kathy wood is currently betting on the short-term trends that stay at home services will remain stronger than expected. As a result, it is possible that she would rather allocate capital to this bet instead of investing in chinese assets that will likely remain low for the short term.

On the other side of the debate, many value investors believe that the chinese capital markets are currently very attractive. Most investors regard warren buffett as the greatest investor of all time and rightfully so, as he has an incredible long-term track record. However, behind berkshire hathaway there are many investors that helped berkshire become what it is today. Two of those people are lee liu, the buffett of china and charlie munger, the right-hand man of buffett.

Both of these successful investors believe that chinese assets are incredibly undervalued right now. Lee liu is a successful fund manager who, according to several sources, has averaged a return of 20 per year since 1998. That is incredibly impressive and one of the primary ways he has done. This is by investing in international investment opportunities with china in particular.

In fact, lilu was the one who convinced berkshire hathaway to purchase byd, auto a stock that has grown by 59 times in value since brochure's initial investment in 2008., charlie munger allocated 19 of the daily journals portfolio to alibaba. This was a very rare occurrence, as manga. Previously only held four stocks with alibaba being his fifth position now and because of how close they are rumors are that lilu convinced, charlie monger to purchase alibaba's stock. Ultimately, monger's investment thesis in alibaba comes down to the fundamentals of alibaba and the ccp's incentives.

The chinese communist party has no incentive to slow down the growth of alibaba in china's big tech. As a result, chinese policies surrounding china's big tech will likely not hurt big tech's fundamentals. Much monger is not always like buffy, as he doesn't care as much about what other people say about him. In this case, he sees alibaba as a growing e-commerce and cloud giant that will likely continue to dominate.

He doesn't care about whether people will call him a sellout for investing in alibaba. However, his alibaba investment definitely has risks. Munger has spoken up against the variable interest entity structure or the vie structure, which is the structure that chinese stocks used to go public on the u.s stock exchange in order to attract foreign investors. However, it appears that his fears have died down because there is no incentive for china to go against the vie structure and any opposition against the vae structure would either scare away all foreign investors and send china into a deep recession or literally start world war iii.

There was never anything like the history of the world, so my hat is off to the chinese and i think they will continue to allow people to make money. They've learned it works the chinese. I love what the guy said in the first place, i don't care whether the cat is black and white as long as it catches mice. That's my kind of talk in that list of the 20 most valuable companies.

Three are chinese. Now, if you, if you're looking out 30 years, you know mama, do you think it'll be chinese? My guess is more but uh, but i don't think i don't think it'll top the united states uh, but who knows similar to monger another well-known value. Investor monish prabrai is also extremely bullish on alibaba and has allocated over fourteen percent of his fund to the company. Manis provide reportedly compounded a return of 25.7 per year over 18 years.

He did this by not looking for stocks that were just slightly undervalued, but by looking for stocks that had a large margin of safety while still having the potential to 5x in value. In a recent interview, he argued that alibaba and tencent are both fundamentally solid capitalistic businesses that will continue growing at a fast pace and especially if you look at some businesses like let's say, if you look at a business like tencent or if you look at business Like alibaba, these two companies, specifically very early in their journey, had western investors or non-chinese investors, and both these companies right from the beginning, i think of them more as being happened to be based in china and because it's such a large market happen to have most Of their operations in china, but they're really uh in many ways, multinational in their views and how they look at things. They've had a lot of, i would say, non-chinese infusion into their dna and thinking very early, and many of those elements are a bit positive for them on both sides of the debate. We have some interesting arguments.

Kathy wood could be making a short-term plan valuations on chinese stocks remaining low for the time being. On the other hand, she could also be selling out of china because the risks are not worth it and that future innovation will be lower than expected. In my opinion, if we are simply looking from a fundamental perspective, china's assets are definitely undervalued, especially since most of china's businesses have remained fundamentally unchanged. In a recent meeting with u.s bank executives, the vice chairman of china's securities regulatory commission feng shinghai reassured that china will continue to allow chinese companies to go public in the u.s as long as listing requirements are met.

Additionally, he also went on to explain how china's regulatory commission didn't expect the market to react so negatively to china's new regulations in the future. He stated that china will take market reactions into account for new policies and will avoid sharp volatility. As you may know, already, china declared that the entire education business will become a non-profit sector in the meeting fang addressed this move to ban for-profit education companies and called it a one-off situation. Despite all of the seemingly good news, there are still some serious risks to investing in china's stocks.

For all we know there could be further regulations made on china's largest companies, not only that but world war iii or the next cold war might just happen in front of our eyes. If you are comfortable with the risks and any ethical concerns, then investing in chinese stocks could be a lucrative investment play at the current valuations. China's big tech could increase by 2-5 x in value over the next five years. With that being said, i have some very exciting news for you.

I am officially opening up a free preview of my stock market research platform down below. My research platform includes my portfolio watch list research reports and much more with only 99 limited spots for the month of august. If you're interested or just curious check out my patreon in the first link down below what do you think about the current chinese news, and will you be investing in chinese stocks? If you enjoyed this video, please hit the like button and don't forget to subscribe and i'll see you in the next one.