Don’t be surprised to see more tech regulations from the Chinese government, strategist warns

Didi shares jump after Beijijng city denies advising companies to invest in the Chinese transportation company. Brad Gastwirth, Wedbush Securities Chief Technology Strategist, joins Yahoo Finance Live to discuss.

Video transcript

JARED BLIKRE: Welcome back to Yahoo Finance Live. I'm Jared Blikre.

Didi's stock up 30% off of the lows only a few weeks ago, and we're going to talk about it all, the actions from the PBOC to the local Beijing government, which may be taking over the company.

And for that, we're going to bring in Brad Gastwirth. He is Wedbush Securities Chief Technology Strategist.

And, Brad, when this stock debuted, it IPOed, I think it was only two days later that the Chinese government came out and just slammed it. And I think that sent a message to investors, but it's been popping recently. Can you tie this together? Is the worst over, potentially, as they look for their new owners, basically the state coming in and taking them over?

BRAD GASTWIRTH: Yeah, Jared, you hit it on the head. I mean, first of all, I think Beijing didn't really want Didi to become a public company trading here in the United States. And I think that by itself started the precedent of-- the perception, at least, by Beijing that Didi was not going to pay attention or listen or to adhere to sort of the structure that the government wants it. And I think right off the bat there's a bad taste in the mouth by actually not necessarily taking their advice and still listing here.

And to your point, I mean, the future holds a lot of interesting things, but, you know, clearly there's been reports that the government-- Chinese government is looking to get more investment or investment into the company. And, you know, it wouldn't be surprising to see, you know, more involvement by the country.

BRIAN SOZZI: And, Brad, how do you handicap a potential delisting here? Is this something that is more than a 50% chance it actually happens?

BRAD GASTWIRTH: Yeah, and, Brian, I mean that's such a good question that it's hard to really, you know, put a probability on it. I'd say 50% just because a coin flip is probably the right way to assess.

But yeah, I mean, I think, you know, with the rhetoric between the two nations really getting worse and worse, and I think when you look at what President Xi has been doing, he's been sending a message that, you know, look, he wants to take control back. Even though the government's always had control, there's been perception, at least from the US investment community, that there was some autonomy in these companies, and that's really far-fetched. I think from the beginning, you know, everybody had to understand that, you know, investing in Chinese companies listed abroad, they're still Chinese companies, and the government can do what they want.

So I think that risk has been now more realized and known. And I think, you know, is a delisting coming? Again, that's a coin flip. But, you know, certainly it's a possibility, and it's maybe a better than-- you know, better than a 50%.

JARED BLIKRE: I'm wondering what you think this does for the EM space overall. You think emerging markets and lots of countries around the world. We used to talk about the BRICs, Brazil, Russia, India, China. But, you know, you've got to think that if you take an ETF like EEM. You look at the top spots, it's almost all Chinese tech. You've got some other big giants in there like Samsung. But if you want to be in an EM, how do you approach this now?

BRAD GASTWIRTH: Yeah, and Jared, I mean, you bring up that-- I think that's really one of the most important points here that I think, you know, people may be missing, and thanks for the question. I think emerging markets-- like, the biggest country beneficiary here is probably India. You're having, you know, high growth, big population, and they also attract very strong talent on the technology side. So I think India is an interesting emerging-market play. When you look at the indexes, I think indexes are tough because, you know, people really can put what they want in an index.

That being said, you know, for me, I like exposure to Southeast Asia. You're on port side, so you have access to water. Cambodia, Laos, Vietnam, Thailand, I think all those countries will benefit over time. Bear in mind the COVID situation is having a major impact in that region because the poorer countries are having harder times getting vaccinations, but I do like Southeast Asia. I see them as a net beneficiary.

I think you'll see more going back into Latin America as you sort of-- or, Jared, as you pointed out with the BRIC countries, they used to be talked about all the time. But I do think you're going to see more investment in Brazil.

But ultimately it's-- I mean, unfortunately you'll see outflows continue for some time out of Chinese companies that are listed abroad. I think, you know, these newer areas-- maybe Africa, but we're still in the-- it's a little bit too early in the frontier over there. I'd say those are the beneficiaries.

BRIAN SOZZI: Is there one Chinese tech company that could survive this? Basically, I'm looking for one name that, you know, maybe they have the best contacts in the Chinese government, whatever the reason, that is not in the same boat as Didi and their stock might thrive on the other side of this.

BRAD GASTWIRTH: I think-- I don't think there's-- there's not going to be one company that's going to make it different than all the other Chinese-listed companies. You know, I think what ultimately may happen is you might see a shift going into the Shanghai or going in listed A shares. I think you might see that take place on these companies because, I mean, if you look at what's happening in Hong Kong and even what China sort of did with Hong Kong-- I mean, there's a lot of wild cards out here.

But when I look at this world-- and by the way, I mean, if you look at China, I mean, it's still an amazing, open-ended growth opportunity. It's just I find it uninvestable from a US perspective right now because you just don't know what that risk will be.

So, you know, I'll wake up one morning and there could be more regulation, a delisting, something maybe being blocked. But I won't wake up one morning with a really positive thing from President Xi saying that he's giving control back to the companies.

So I find the downside risk is very significant. The upside surprise is not there. And to me, that makes, you know, outflows likely for some time.

JARED BLIKRE: Yeah, you got to think that we're still in the beginning stages here and seeing all those stocks chopped in half and still basically in the bottom end of their trading ranges. We're going to be keeping an eye on this.

And, Brad, thanks for stopping-- thanks for stopping by. Brad Gastwirth, Wedbush Securities chief technology strategist.