(Sept 25): One clear focus has emerged from a raft of meetings I spoke at over the past two weeks in China. It is a theme common at the Asean meeting in Nanning, the Silk Road Chamber of International Commerce meeting in Xi’an and in meetings with several provincial governors and other senior departmental staff from the far northwest to the far west and southwest of China.
There is little concern about how the world interacts with China. The primary focus is how China will interact with the world. The Belt and Road Initiative is central to this growing confidence and certainty.
Surprisingly, US President Donald Trump’s speech to the United Nations has given a boost to this approach as he suggested that national sovereign state interests were more significant than sovereign state cooperation. It is a message President Xi Jinping will cheerfully take to the Communist Party Congress meeting on Oct 18.
China has moved remarkably quickly from being a pawn in the international economy and from the sense of historical victimhood that drove Chinese patriotism a decade ago. Now, it sees itself as a significant economic player — albeit excluded from much of the global economic architecture by the West. Denied access that matches its economic might, China is moving to rewrite some of the rules governing global economic management and insert new rules and structures.
The Chinese architecture of e-commerce in Asia via WeChat and Alipay is being extended into Eurasia and Eastern Europe. Business cannot afford to be excluded from this architecture with its slightly different payment gateways and processes. Organisations such as the Silk Road Chamber of International Commerce are directly involved in assessing and managing this architectural design.
The old desire for assistance and access to Western expertise in agriculture, health services, care for the elderly and delivery of services to areas of decreasing and increasing population densities has not gone away. It has been reclothed with more confident colours. Knowledge and cooperation are sought to complement work already being done, whereas in the past, cooperation was often sought to replace work and processes, or initiate entirely new approaches.
This is not the grab-and-copy approach that was thinly disguised as cooperative technology transfer. President Xi’s vision of “designed in China” has moved to what we might call “conceived in China”.
This confidence is captured in the Belt and Road Initiative. The West remains fixated on the infrastructure aspect of this policy, but this is just the tip of the iceberg. The policy initiatives bring together a raft of procedural, regulatory and attitudinal changes. It is this context that makes Belt and Road so significant and unstoppable. It is something that Trump has recognised viscerally in his speech to the United Nations and we can expect to see Xi expand on this theme in October.
The Shanghai Index breakout above the key resistance level near 3,360 has faltered. Following the initial breakout on Aug 28, the index used the 3,360 level as a support level. This was bullish. However, on Sept 15, the index moved below the 3,360 level, and now this level acts as a resistance point. This is not yet a significant move below 3,360, but the reduction of the consolidation area shows the uptrend breakout is losing momentum and strength. This suggests the index could develop a larger pullback prior to a new retest of 3,360 as a resistance level. This consolidation and move below 3,360 is a bearish feature on the chart. However, the longer-term outlook remains very bullish.
The consolidation remains bullish because the long-term Guppy Multiple Moving Average indicator remains well separated. There are four aspects to the bullish GMMA analysis.
The first feature is the steady degree of wide separation in the long-term GMMA. This separation is now around 44 index points and is the largest since the longer-term GMMA compression and crossover in July. This shows investors are very confident about the future of the trend and this suggests any pullback is a buying opportunity.
The second feature is the way the upper edge of the long-term GMMA has moved well above the resistance level near 3,290.
The third feature developed the week of Sept 18. The lower edge of the long-term GMMA has moved above the resistance level near 3,290. The entire long-term GMMA is above the crucial resistance level near 3,290. This, coupled with the good degree of separation, is a very bullish combination.
The fourth feature is the steady degree of separation between the long- and short-term groups of averages. The short-term GMMA is moving sideways, with the lower edge of the short-term GMMA just below 3,360. This continued good separation confirms that the Shanghai Index has a stable uptrend.
Investors watch for the index to continue to stay near to the resistance level near 3,360 and for the upper edge of the long-term GMMA to continue to move upwards. This long-term GMMA will act as a support level so that investors are ready to enter the market as a rally rebound develops. This new rally signals a resumption of the uptrend.
The longer-term upside target is near 3,640. This was the previous long-term resistance level created in November 2015 and January 2016.
This is a steady, low-momentum uptrend, where the index is clustering around the 3,360 resistance level. Investors also watch for a rebound from the upper edge of the long-term GMMA.
Daryl Guppy is an international financial technical analysis expert and special consultant to AxiCorp. He has provided weekly Shanghai Index analysis for mainland Chinese media for more than a decade. Guppy appears regularly on CNBC Asia and is known as ‘The Chart Man’. He is a national board member of the Australia China Business Council.