Shanghai index rebounds in the Tiger Year
China’s 14th Five-Year Plan has eight elements. The last three are to promote green development, promote high quality development of the Belt and Road Initiative (BRI) and usher in a new stage of building a peaceful China. The last of these is a political statement and not of direct relevance to business.
The promotion of green development opens a wide range of business opportunities. It is important to understand that China is already well advanced in many of these areas so there are limited opportunities to bring the benefits of Western developments to an ‘underdeveloped’ China. For instance, the Beijing Winter Olympics are the first completely carbon neutral major sporting event.
The business opportunities come from adding to the advances already made by China, and assisting with project implementation. This is not to say that China can do it all alone, but business needs to recognise that there are limited opportunities to showcase new developments in this area.
Inevitably there are niche areas of development where foreign expertise is more advanced than that in China. Agriculture and environmental monitoring are potential candidates.
There are however many business opportunities around bringing Chinese advances in these areas to the broader international community. Electricity for the games is provided by the 200MW agrivoltaics project of Yanzhong,with all modules supplied by JA Solar array which — in the depths of winter — is able to meet the demand. There is an export market for this advanced application of solar energy.
Many Chinese companies will be interested in distribution and development partnerships. It is the penultimate component of the Five-Year Plan that offers perhaps the most opportunity for business and investment. The promotion of high-quality BRI signals opportunities not just in China, but within the entire Belt and Road community. It shows that the BRI is an ongoing priority policy project and that funding will continue to flow into it.
Although there is a focus on the hard infrastructure components of the BRI it also involves a significant soft infrastructure build. Enabling companies to engage with the BRI at a software level where programming and API solutions are compatible with BRI protocols will present major opportunities for business. Already the Singapore government has helped packages to companies to develop BRI compatible software and for companies to embrace BRI processes. These opportunities can be extended to all the countries which are involved in the BRI and this represents a significant export opportunity as BRI countries look to bring their business processes up to speed.
BRI work inside China may offer limited opportunities, but servicing BRI work outside of China is a different story. Understanding BRI protocols and developing appropriate solutions present a major business and investment opportunity. The BRI is an umbrella concept and many other components in the Five-Year Plan fall under the BRI. This includes the potential to partner with green development BRI proposals.
The 14th Five-Year Plan is a blueprint of the policy priorities over the next five years. These priorities will remain in place despite any changes in the make-up of the politburo and in this sense offer a firm and reliable investment path.
Technical outlook for the Shanghai market
The Shanghai market plunge was followed by a rapid rebound from the long-term support level near 3,350 shown as line D. This fast rally has been helped by the rapid retreat and rally in the US markets, but also by the “circuit breaker” imposed by the suspension of trading during the Spring Festival holiday.
This gave time for participants to more calmly consider the market strength and this is reflected in the fast-rebound rally.
The intermediate resistance level near 3,450 shown as line C has been decisively broken on the upside. This suggests there is more strength in this rally as it moves towards the resistance line B.
This is a long-term median line in the trading band that defined most of the activity in 2021. The lower edge of the trading band is line C near 3,450. The upper edge of the trading band is line A near 3,595.
A successful retest of the lower edge of the trading band shown by line C will suggest a return to the trading band activity that dominated the 2021 market. Whilst this is not as profitable as a well-defined long-term uptrend, this behaviour does offer many shorter-term trading opportunities.
The current rally is part of a significant trend reversal but a consolidation period is needed before it is safe to apply other technical indicators. The rapid fall in the market distorts the behaviour of indicators based on moving average calculations. These are as diverse as the RSI, Stochastics and MACD indicators. The Guppy Multiple Moving Average (GMMA) indicator is also impacted. Investors need to wait for the influence of the steep fall to ‘wash-out’ of the indicator calculations before these indicator tools can again provide reliable signals.
Until it develops, it is the less complex support and resistance and trend line analysis that will provide the best way to understand the market behaviour and the potential development patterns.
A guide to potential behaviour is the previous Shanghai index activity in 2021, July when the market also tested support near line D at 3,350. The rapid rally moved above 3,450 and continued up before reacting away from resistance near 3,520. This provided rally trading opportunities.
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 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