Distorting the digital economy
US President Joe Biden has spent the past week reaching out to the region, intent on expanding US influence. Next week, Chinese Foreign Minister Wang Yi will reach out to much of the South Pacific, intent on expanding Chinese influence.
Those in business cannot ignore these efforts at influence because they impact how we do business and who we do business with.
Biden’s trip followed the meeting with Asean leaders in Washington. At this meeting, he offered a US$150 million ($206.5 million) commitment to a US$3 trillion Asean economy, which is an indication of the depth of his understanding of the region and US priorities.
In his current tour of the region, he came with another proposal for the Indo-Pacific Economic Framework (IPEF). It is notable that IPEF was created without input or consultation with its proposed partners, so it remains very much a US initiative.
Biden has enlisted a dozen Asia Pacific nations to join a new loosely defined economic bloc meant to counter China’s dominance and reassert American influence in the region. With this focus, it is also clear that the purpose of the agreement is to exclude China from the Asean economy, and that has consequences for business.
This year, four big multilateral summits — Brics, the East Asia Summit, the G20 and Apec — will be held in East Asia. Biden’s sudden introduction of IPEF sits outside this established framework of cooperation.
Biden was clear in Japan. “We’re writing the new rules for the 21stcentury economy,” he said. What was less clear was just how those rules would be structured to exclude China.
White House National Security Adviser Jake Sullivan was more direct. He said IPEF is “focused around … the setting of standards and rules, particularly in new areas like the digital economy”.
Those will be US rules and standards, and most likely, rules and standards designed to exclude China and make Chinese digital products incompatible with USimposed standards. This is not just about cell phones. This is interfering with the essential infrastructure of the digital economy in all its aspects, because any specific agreements that emerge from the grouping could go a long way towards setting standards even beyond its membership.
In a nutshell, this is aimed to determine who you can trade with, and how you can trade with them, including how you can get paid for cross-border transactions. IPEF is designed to capture the free-wheeling development of the digital economy by strangling the development of cooperative standards. If this succeeds, then it means business will require a different set of equipment and software to work with Chinese customers and participate in the China market, in addition to equipment and software to work with US market standards. This is much more than just the shape of the power plug, because it is the very structural foundation of the digital economy.
Pure economics will force business to choose, and how they choose is an issue for investors.
Technical outlook for the Shanghai market
Without a doubt, this is the most bullish move seen in the Shanghai Index in months. It has some of the characteristics of a trend rebound, although there are significant resistance barriers to be overcome.
The most important feature is the development of trendline B. The exact placement is difficult, but the line captures the significant retreat and rebound points. To be sure, you can play around with the placement of the line, starting a little higher, making it touch three anchor-points rather than two as shown.
These are minor adjustments that do not take away from the direction of the overall trend. The trendline as shown provides the trader with a trigger signal. A sustained close below the trendline will signal an end to this rally and an end to the nascent trend. A significant close is a close below the line, followed by a lower open and a lower close.
But this uptrend movement has three significant resistance barriers. Two of them are created by the longterm group of moving averages. The lower edge of the long-term Guppy Multiple Moving Average (GMMA) is the first resistance feature. The index has previously reacted away from this feature. However, the current rally has penetrated this level prior to developing a pullback. This type of pullback is a normal part of the test and retest that often accompany a change of trend.
The second resistance feature is the value of the upper edge of the longterm GMMA. This is currently near 3,180. A strong push through the longterm GMMA and a breakout above 3,180 is a very bullish development.
There is a higher probability that the index will make several attempts before it is able to move above the upper edge of the long-term GMMA.
The third resistance feature is the value of the long-term resistance level near 3,220. This is shown as line A. The index used this level as a support area in March and April. The index had oscillated around this level before falling in late April. There is a strong probability that this level will again act as a significant resistance feature.
The development of a consistent rally, shown by trendline B, is a bullish development. However, it is unlikely to be an early trend break, simply because of the strong resistance features that inhibit the continued rise.
Daryl Guppy is an international financial technical analysis expert. He has provided weekly Shanghai Index analysis for mainland Chinese media for two decades. 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. The writer owns China stock and index ETFs