Cathie Wood’s ARK Invest Didn’t Dump All Chinese Stocks. Here’s What It Still Owns.

The Ping An Good Doctor app, shown in 2018.

Anthony Kwan/Bloomberg

ARK Invest, led by the famous stock picker Cathie Wood, recently dumped most of the Chinese holdings from its actively managed exchange-traded funds. But this doesn’t mean the asset manager has completely given up on the Chinese market.

While China has become fully digitalized in areas like e-commerce, mobile payments, and food delivery, healthcare has been an exception. ARK sees tremendous opportunities in the digitization of that business, according to research it published this week. It says some companies could benefit greatly. 

China’s healthcare system has long been overburdened and high-quality medical resources are scarce, wrote ARK analyst Yulong Cui. The biggest and best-quality facilities account for less than 10% of the 30,000 hospitals in China, but handle more than half of the country’s total visits. Patients can wait for days before receiving care from the most seasoned and reputable physicians. 

China’s healthcare institutions are also significantly underfunded. Healthcare spending makes up less than 7% of gross domestic products, lagging behind most of the developed world, thanks to low rates of reimbursement by the government. 

As a result, Chinese physicians are often overwhelmed by work, but earn way less than their Western peers. This can create problems for both doctors and patients. Doctors tend to overtreat or prioritize patients who are willing to pay under the table, and then receive abuse or physical threats from people who haven’t gotten the services they need.

A digital transformation could alleviate some of the pain points, wrote Cui. This includes online consultation, AI-assisted clinical support systems, digital healthcare apps, home delivery of prescription drugs, and platforms for specialized care. Doctors would be more efficient and patients would get better care.

The government, for one, is on board. Since 2015, Beijing has introduced a series of policy changes to steer more healthcare solutions online, according to Cui. The latest draft rules would not only permit online prescription sales for the first time, but would also put the reimbursement rates for online consultations on par with hospital rates.

All this means China’s healthcare might soon reach an inflection point for accelerating digitization. ARK estimates that online consultations in China are likely to increase significantly, going from 6% of all healthcare visits in 2019 to 50% by 2025. That means more than 30-fold growth from $1.5 billion to a potentially $50 billion market.

Ping An Healthcare and Technology (1833. Hong Kong), Alibaba Group Holding (BABA), and JD.com (JD) all have their own digital health platforms. Private firms in the space are also growing fast. Tencent-backed WeDoctor, for example, is planning to go public on the Hong Kong stock exchange later this year. 

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The ARK Autonomous Technology & Robotics ETF (ARKQ) and ARK Fintech Innovation ETF (ARKF) currently have some holdings in those stocks. The rest of ARK’s funds have stayed clear of Chinese names for now due to volatility linked to regulatory risks. ARK has also been a big investor in U.S. telemedicine stocks such as Teladoc Health (TDOC), signaling similar optimism about the industry.  

Write to Evie Liu at evie.liu@barrons.com

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