If you do business in China and you have not paid much attention to US President Joe Biden’s chip ban, then you need to take a close look. The implications go well beyond semiconductors. This unilaterally applied extra-territorial reach has the capacity to impact many aspects of any business relationship with China.
The new restrictions are not confined to the export of high-end US semiconductor chips. They extend to any advanced BLZ chips made with US equipment.
Biden’s move is based on the premise that any advanced chip can be used by China’s military, including for nuclear weapons and hypersonic missile development. This premise conveniently ignores the fact that all such chips are dual-use. The same chips that run your home computer are also used by businesses and the military for administration.
Biden’s chip ban essentially means the US is now committed to blocking China in all kinds of civilian technologies that make up a modern digital economy. This impacts every nation with a high-end computer export sector. It does not matter if they are based in Taiwan, South Korea, Singapore, Thailand or the Netherlands, because their economy is also under attack by this measure.
This also impacts Singapore’s ability to develop and export new software solutions that rely on advanced chips. This is not software written especially for these chips. It is software that needs these chips’ capability to be able to operate. Think trying to run Windows 11 on an old computer that uses an early 1989 486 or i860 Intel Chip. It is not possible, even if the software application is clearly not for military purposes.
This decision also becomes an attack on the digitalisation of Asean economies, where the takeup of China’s digital services and protocols is already high. The US seems comfortable with the wider collateral damage inflicted across Asean economies.
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American analysts outside of government are near unanimous in their assessment: that Washington is now committed to cutting off China’s access to “foundational” technologies in order to maintain its primacy. First cab off the rank is advanced semiconductors.
A colleague works in the area of biotech, an obvious area of complementarity between Singapore and China. He is concerned that this will be the next area targeted with chip-like bans. He hopes this may be avoided because it is an industry which is very global and more “discovery-dependent”. Others think that its discovery dependency makes it a target on the grounds that the US does not want advanced solutions to be made available to China.
How does a business deal with these developing walls? The answer is beyond the capability of individual businesses. This has to be resolved at a political level, but unless political leaders are alerted to the full ramifications, then the damage inflicted will be substantial.
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Singapore, along with much of the world, seems unaware of the long-term consequences of Biden’s chip ban and its impact on global prosperity. America’s mafia-style capitalism has now resorted to virtual assassination and is unconcerned with any collateral damage.
Technical outlook for the Shanghai market
The Shanghai Index remains below the long-term support level near 3,050. It has developed the appearance of a double-bottom near 2,940, but this is of doubtful significance. It is doubtful because the rally rebound and retreat that create the central peak in the ‘W’ pattern failed to move above the upper edge of the long-term group of averages.
Typically, a successful double bottom pattern includes the ‘W’ middle peak moving into or above the upper edge of this long-term group of averages. This gives an indication that investor selling sentiment is weakening. We do not see this pattern development in the current index activity.
Like the previous brief rebound, this is not an indication of a trend change. The developing rebound will re-test the old support level, which is now a resistance level, near 3,050, with another weak breakout.
The Guppy Multiple Moving Average (GMMA) relationships continue to show strong downward selling pressure. They remain well separated and they have maintained a consistent degree of separation between the two groups of moving averages since early September. This is characteristic of a strong sustained downtrend trend. It will take several rally attempts to break this downtrend.
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Investors and traders are alert to the development of a 1-2-3 GMMA pattern. This is where the market rallies but falls short of the long-term GMMA. The next rally penetrates the long-term GMMA. The third rally breaks above the long-term GMMA and is used as confirmation of a trend breakout and the beginning of a new uptrend. These are major rallies developing over days or weeks.
Currently, the expansion in the long-term GMMA shows unrelenting selling pressure with a constant degree of separation between 30- day and 60-day exponential moving averages.
The Shanghai Index has a characteristic of a sharp accelerated plunge followed by a rapid recovery. This was seen in April 2022. The current downtrend has similar characteristics and this plunge was repeated over the past few days.
Weak support is located near the April 2022 lows at 2,870. This is the target level of an exhaustion sell-off. A test of this level may be followed by a rapid rebound rally. The key feature to watch for confirmation is a rapid compression in the short-term GMMA and for the rally to lift the index above the upper edge of the long-term GMMA group of averages.
This exhaustion level is just below the trading band projection level.
There is now a weak RSI divergence pattern; but this does not suggest an end to the downtrend activity, because the peaks are located below the 70% level on the RSI. This remains a solidly bearish environment with the potential to develop consolidation around historical support levels.
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
