SINGAPORE (Oct 22): Business councils must show how China’s Belt and Road Initiative is compatible with national development policies and they must encourage government and business to engage with BRI policy. They must overcome the barriers to understanding. This was the focus of my discussion at the Belt and Road International Business Cooperation conference held in Zhangjiajie by the Silk Road Chamber of International Commerce.

This has become even more important as US President Donald Trump has increased his destruction of the global trading environment. This is a serious economic challenge but, fortunately, BRI provides an alternative structure that supports the World Trade Organization (WTO) and other cross-border trade processes. The first task as business organisations is to help members and governments understand the foundation of BRI so they can counterbalance the anti-trade narrative from the US that is distorting good policymaking in other economies.

The second task is to accurately recognise the barriers that are being created and work towards overturning them by promoting policy discussion with business and government leaders.

There are three barriers that business chambers must recognise:

(1) Tariffs and trade barriers. This includes the unilateral imposition of tariffs by the US. It includes the US-led destruction of the global rules-based order by ignoring or undermining the operation of the WTO. It also includes the use of third-party penalties, such as when the US threatens actions against other countries for doing business that is inconsistent with US policy.

It now includes the threat that countries must not enter into trade agreements with China. This is direct US interference in domestic politics. Business organisations must convey the concerns of their members and develop political solutions.

(2) The false use of security concerns and using these as a method of destroying business competition. These are attacks by government on business and they are designed to protect domestic business. There is a trend towards using unexplained security concerns to frustrate investment and business. Chambers should not be afraid to use the financial media to highlight their members’ concerns about these bully tactics.

(3) Processes and regulations that frustrate the smooth operation of cross-border trade. Members of business organisations must be encouraged to report the new regulations and new paperwork delays so chambers can present these in a coherent manner to policymakers. Chambers are the collective voice of their members.

The task of business organisations is to help their members overcome problems created by these barriers. But they also have another important task. They must educate their members and governments about BRI.

<strong>Technical outlook for the Shanghai market </strong>

The Shanghai Index collapse below support near 2,690 continues, but the momentum of the fall has paused. Downward pressure remains strong, but it has not developed any increased momentum. It is too soon to suggest the index is consolidating near 2,550, but the downward selling pressure is moderating. This shows some moderate strength because world markets fall significantly before staging some recovery.

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It is now clear that this retreat will be a continuation of the downtrend in the Shanghai Index. It is not just a temporary dip below the support level because the index has not developed as a rapid rally rebound.

The probability of a strong V-shaped rebound trend recovery remains very low, so traders wait for a consolidation pattern to develop. Consolidation is when the index moves sideways without any trending activity. The slowing down of momentum is perhaps the beginning of a consolidation pattern.

In the future, as a consolidation pattern develops and the index moves sideways, then traders will watch for the long-term Guppy Multiple Moving Average (GMMA) to develop compression because this is further evidence that the downtrend selling pressure is reducing. This type of prolonged sideways movement is sometimes called a base pattern because it is the base for a new uptrend development.

The Shanghai Index has the characteristic of developing a fan trend-reversal pattern and this is best seen on a weekly chart. The fan pattern usually has a support base. Investors anticipated support near 2,650 but this has been broken in the past seven days. The fan pattern will remain valid if the index is able to make a recovery and cluster near to the 2,650 level.

The fan pattern is a series of trend line expansions. All the trend lines start from a common point at the high of February 2018. There are usually between three and five trend lines that form the pattern.

If the dip below support is not temporary, then the weekly and monthly charts provide some indication of where the next support level is located. This is near 2,400. This was a support level in 2010. It acted as a resistance level in 2012 and 2013. Historically, there is no strong support level between 2,690 and 2,400, so there is a very low probability that the index will find support above 2,400.

This does not preclude the development of some rally and rebound activity as the index moves towards 2,400. However, these rally or rebounds are short-lived events with limited trading opportunities from the long side. Investors and traders have little choice but to wait out this fall because the market cannot be traded from the short side. The only option is to stay out of the market until support is proved near 2,400. This reduces market volume and turnover. The inability to trade short means the market momentum is not slowed, so the market could fall very quickly to test the 2,400 level.

As the index approaches 2,400, traders watch for evidence of slowing momentum and weak rally rebounds. A fall of this magnitude means it will take some time for a new uptrend to develop.

<i>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.</i>

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