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‘China is going back to a policy of total control’: Wolfpack Research Founde

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Dan David, Founder & CIO at Wolfpack Research, joins Yahoo Finance Live to discuss the outlook on Chinese stocks amid China’s continued crackdowns.

Video Transcript

ALEXIS CHRISTOFOROUS: Beijing plans to break up Ant Group's Alipay and create a separate app for the fintech giant's loans businesses. It's just the latest development in a months-long regulatory crackdown on China's own tech giants. Joining me now to discuss is Dan David, founder and CIO at Wolfpack Research. Dan, good to have you on the show. So when investors, US investors hear this, first off, what do you make of China's crackdown on Alipay? And how should US investors be thinking about this when it comes to their own portfolios and looking at the Chinese stocks?

DAN DAVID: Well, this is-- I wish I could say this is just the beginning. But they've already began with the China education stocks. And I know the bulls wanted to say it's just going to be the education stocks. And then it was the crackdown on gaming. But it was just going to be the gaming, the IPO with Ant Financial.

We really are not even in the beginning stages of of the crackdown. China is going back to a policy of total control. And they don't want people having the kind of addiction to gaming that maybe we have here.

If you think about the kind of outlook that China has, a Communist Party would have, that the state is above everything, including religion. And some of these kids are pretty religious about the gaming. And they're taking that away. And they're getting everybody's attention, everybody on board with China's policy going forward. And that is to be a hegemony in the world.

ALEXIS CHRISTOFOROUS: So if you're a US investor and you're looking at the Chinese market in terms of owning Chinese ADRs-- those would be the Chinese stocks listed on US exchanges-- as a way to diversify the portfolio and to get some exposure to international stocks, how do you view the Chinese stock market or these Chinese stocks relative to that?

DAN DAVID: Very dangerous. I wouldn't be in them. And I think what's important for the American investors to understand, that just because you didn't buy any of these stocks in your E-Trade account doesn't mean you don't own them. They're in all the mutual funds. They are in all the index funds. You go to BlackRock, they're huge in China. They're not backing off at all, or Vanguard, or Fidelity, or any of these huge mutual funds and index funds that I think are putting us at great risk.

I believe that starting with the legislation that was passed, where you're Holding Foreign Companies Accountable Act, the President Xi has decided that these China-based companies are going to delist on his timeline. They're not going to be kicked off the exchange. He's bringing them home, so to speak.

And this is why they're opening the Beijing exchange on yet another one. This is a fourth one for them. And they're bringing these companies off the exchanges before there are any major conflicts between the United States and China, which it looks like there are going to be some.

As you see, President Xi seems to be very much so of his word. And his word has been we're taking Taiwan. Now, imagine all of these stocks listed abroad if a conflict like that breaks out, and part of the reason they're bringing them home.

ALEXIS CHRISTOFOROUS: So would you-- are you recommending that investors purge their portfolios of Chinese-related influence? And if they have infiltrated so many different parts of our stock market, how do you even go about doing that?

DAN DAVID: Well, I think it has to be at a government level. And as you may or may not know, I've worked with Congress for the last 12 years on what was deemed "The China Hustle," the movie, the documentary. I continue to work on this issue with my podcast as we discuss it. And I do believe that we need to-- we need to pull back.

Now, when you say "with Chinese influence," that's a very, very, very broad statement. I'm talking more direct investment, whether it be through Hong Kong or whether it be through our China-based US-listed companies, that we should pare back to nothing. That doesn't mean that if a China-based company has a stake in a US company or a European company that they, too, should be shunned. They should be looked at. You should see what that stake means.

But yes, this is happening on their timeline. This is happening. We're reacting to it, right? So what we've all understood for years is China has a plan. And they follow that five-year plan that they publish. But they have a 10 and 15-year plan as well that they don't publish. And they follow that.

We're reacting to their plans rather than marching forward with our own plans. And this is going to have the cause for China, at least in the short term, of getting more direct consumerism within their own country, which is what they want to be. They want to drive domestic consumerism. So bringing these companies home's doing that.

ALEXIS CHRISTOFOROUS: All right, we're going to have to leave it there, but Dan David, founder and CIO at Wolfpack Research, thanks so much for your insights today.