China’s weighting in Wood’s flagship Ark Innovation ETF has plunged to less than 1% from 8% as recently as February, while that of the Ark Next Generation Internet ETF has fallen to 5.4%, the lowest compared to month-end figures since Bloomberg began compiling the data in October 2014. The China weighting in Ark’s fintech ETF has remained steady at around 18%.

“I do think there’s a valuation reset,” Wood, Ark’s founder and chief executive officer, said in response to questions on the outlook for larger Chinese tech firms during a monthly webinar with investors on Tuesday. “From a valuation point of view, these stocks have come down and again from a valuation point of view, probably will remain down.”

The paring of Chinese tech holdings by one of the world’s biggest thematic fund providers underscores how the sector is losing its allure as Beijing increases scrutiny of the industry’s data collection and offshore listings. Many investors are wary of calling a bottom, even as a gauge of China’s Internet companies has rebounded in recent days after losing over $1 trillion of market value since mid-February.

Ark’s falling exposure to China reflects both reduced stakes in bellwethers such as Tencent Holdings Ltd. as well as declining valuations. An Ark representative declined to comment on the firm’s holdings.

The active ETF provider hasn’t changed its outlook or five-year price targets on larger Chinese tech stocks that it owns, Ark’s Asia innovation analyst Yulong Cui said on the webinar. “This is largely because the regulatory changes have not, for the most part, impacted the businesses from a fundamental point of view with regards to cyber security clients or U.S. listing reviews,” he said.

Still, Ark’s funds have continued to pare China tech holdings—including Tencent and JD.com Inc.—as recently as Tuesday. Its other reductions this month include KE Holdings Inc., which operates an online platform for Chinese housing transactions and services.

Ark’s flagship fund’s exposure to Tencent has dropped to about 0.5%, the lowest since September 2020, while that for the Ark Next Generation Internet ETF has slid to around 0.8%, the lowest since at least 2014, according to month-end figures compiled by Bloomberg.

The Hang Seng Tech Index was little changed on Wednesday after recouping some of its yearly loss in three straight sessions of gains through Tuesday. China’s decision to approve an acquisition for Tencent has eased some concerns about regulations and added to the positive momentum that started after the gauge turned oversold on technical indicators last week.

These vehicles are “very momentum oriented being loaded on Tech and it likely made sense to reduce the footprint faced with regulatory pressure to encourage more competition in China,” said Sebastien Galy, a senior macro strategist at Nordea Investment Funds SA. While regulatory scrutiny is here to stay for the next few years, it seems like it is temporarily ebbing so these funds’ positioning can change again, he added.

Even after the recent rebound, the Hang Seng Tech Index is down about 9% for the year. That compares with a gain of around 6% in the MSCI Asia Pacific Information Technology Index and a nearly unchanged MSCI Asia Pacific Communication Services Index.