Globalisation was killed by Covid-19, or so some would have us believe. If globalisation is dead, then it is a serious situation for China, Singapore and other export dependent countries.
The truth is, China sits at the beating heart of globalisation. Covid-19 brought with it a hurried conversation about over reliance on a single supply chain — usually taken to mean China — and the need for sovereign independence when it comes to trade. Business shuddered at the screenshots that purported to show the concentration of ships clogging Shanghai waiting for port openings. All of this was supposed to presage a shift away from overseas suppliers and a build-up of domestic industry. It even coined a new term — onshoring — and drove the nationalist agendas for several elections.
If globalisation is dead — or breathing its last gasp — then those who do business with, or invest in business with China, must also be on their last legs. But as writer Mark Twain is reputed to have said: “The report of my death has been grossly exaggerated.”
Globalisation is alive and well. True, it is not growing as rapidly as it was, but nor is it fading away or on the edge of demise. That is good news for business and investments that rely on international trade, particularly with China.
The country’s manufacturing and exports have stayed remarkably strong throughout the Covid-19 period. Its exports as a percentage of total world exports have declined by less than 1% in the period 2020 to 2021. Ratings agency Standard & Poor estimate that in 2020, China exports represented 17.5% of world total exports, up from 16.25% in 2019.
Despite all the problems of supply chains, Chinese exports at the end of 2021 represented 17.4% or total world exports or a decline of 0.1%.
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These are surprising figures that go against the death of the globalisation story, and some dismiss them because they are figures from China that are supposedly notoriously unreliable (partly because they are published so quickly after the end of each quarter).
This may have been true in the past, but is less correct now. The growth of the digital economy and the use of the Digital Currency Electronic Payment (DCEP) — or digital yuan — means that consumer and business expenditure data is now available instantly as soon as the transaction is completed. We can have much more confidence in the accuracy of China’s economic reporting.
But confirmation that globalisation is still breathing comes from sources outside of China. The CEO of Moller-Maersk Soren Skou says there is little evidence of US or European manufacturers bringing production back home.
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His conclusions are based on the activity of Maersk shipping, which is the world’s second largest container shipping group moving one out of every six seaborne containers. Skou also says manufacturers are looking for additional suppliers in Asia. Whilst that is not the best news for China, it is good news in terms of the survival of globalisation.
The hiccup is the slowdown in liberalisation. Covid-19 is on top of the lingering effects of former US President Donald Trump’s trade war, which means there is less appetite for new trade deals that liberalise the flow of goods. The breakneck growth of liberalised trade policies in the pre-Covid-19 period has slowed to a limp. That is an impact of supply chain concerns and the kneejerk protectionist response to bring manufacturing back home despite the poor economics of doing so.
China may find a more competitive post-Covid-19 environment, but it will still retain its place as the king of globalisation.
Technical outlook for the Shanghai market
The Shanghai Index breakout has continued. The current index activity is a confirmed breakout from the long-term downtrend. This does not mean the only direction for now is up. Trends by their very nature include rallies and retreats. The uptrend is defined by its general tendency to take the market higher. The first measure of this tendency is the uptrend line B. This line is used by traders to determine uptrend behaviour. A close below the line signals a potential end to the current trend behaviour. It does not necessarily signal the end of the current trend and the beginning of a major trend reversal.
To date, the market behaviour has been consistent with the application of this trend line. It is inevitable that this trend line will be broken, and depending on the nature of the retreat, a new uptrend line will be plotted. The second measure of the trend is defined by its behaviour. This is assessed using the Guppy Multiple Moving Average indicator (GMMA). The GMMA consists of two groups of averages. The short-term group provides insights into the way traders are approaching the market. Compression shows an agreement about price and value. Expansion shows disagreement and signals the potential for trend behaviour to continue. Currently, this group shows expansion which suggests the uptrend pressure will continue.
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The long-term GMMA provides insights into the behaviour of investors. Compression shows agreement about price and value. This is the current situation with compression showing investors are beginning to change their opinion about the potential for a sustained uptrend. Support for this new uptrend is shown when the long-term group of averages begins to expand.
The third measure of trend behaviour is the degree of separation between the long-term and short-term group of averages. Wide and steady separation shows a strong and stable trend. This has not yet developed with the Shanghai Index. This suggests there is the potential for rally and retreat behaviour as this uptrend develops. However, the current GMMA relationships lean towards a continuation of the uptrend in the longer-term. The final analysis feature is the strong support level near 3,220. This is not an exact level, but the index has used this area as a support feature and as a resistance feature in the past. The index can retreat to this level and still remain in a broad uptrend. A move below this level would suggest the uptrend has weakened and that a new downtrend may develop. This price behaviour remains the most bullish behaviour seen since March 2020 and August 2021, and remains a strong developing and sustainable breakout. Upside target is near 3,380.
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
