Why Rotation Out Of Chinese Tech Stocks Bodes Well For Apple, Microsoft And US Tech Stocks

Last week Chinese ride-hailing giant DiDi Global Inc. DIDI announced plans to delist from the U.S. This underlines the regulatory pressure under which DiDi and other tech stalwarts have been operating in.

China Tech Pain Is Gain For U.S. Peers: Beijing has created hurricane-like headwinds for Chinese stocks in 2021 and cast a dark shadow over the space heading into 2022, Wedbush analyst Ives said in a note.

"We believe these dynamics will yet again bode well for US tech stocks as the favorable backdrop and rotation away from Chinese tech into US tech creates a 'nirvana set up' for FAANG names and the tech sector into the next year," the analyst said.

This is particularly true as growth stories continue to play out as part of the $2-trillion-dollar digital transformation, he added.

Fear of more regulation in China is hard for investors to digest and continues to be a major deterrent around owning Chinese tech names, Ives said. This explains their massive underperformance thus far this year, he added.

U.S. tech stocks will be up another 20% for 2022, with Nasdaq likely to hit the 19,000 target, Wedbush estimates. Although volatility could be expected around the time when the Fed starts to raise rates, the fundamental story for U.S. tech is very bullish, heading into 2022, the analyst said.

Related Link: Why Apple Is On Track To $3 Trillion Market Cap In 2022: A 'Safety Blanket' Tech Stalwart During Market Storm

Favorite Tech Plays For 2022: Growth prospects around cloud, cyber security, 5G and the metaverse are unparalleled, notwithstanding stretched valuations, Ives said. 

The chip shortage will likely ease throughout the first half of 2022, the analyst said, citing his recent checks. This will further buoy the overall tech fundamental demand story in a Golden Age for the tech sector, he added.

Wedbush's favorite tech names into 2022 are Apple, Inc. AAPL and Microsoft Corporation MSFT.

Cyber security stocks such as Zscaler, Inc. ZS, CyberArk Software Ltd. CYBR, Tenable Holdings Inc TENB, Varonis Systems Inc VRNS, Palo Alto Networks Inc PANW, SailPoint Technologies Holdings Inc SAIL and Fortinet Inc FTNT also stand out, heading into 2022, the firm said. Matterport Inc MTTR remains the firm's favorite metaverse play, it added.

Photo: Ezreal Shang via Unsplash