China’s GDP surged 5.3% higher than the anticipated 4.6%, outpacing observers’ expectations.
This uptick is unsurprising given the resurgence in discretionary spending, a telling gauge of China’s economic vitality and outlook.
The recovery doesn’t entail reverting to pre-pandemic spending norms. High-end fashion and luxury sectors are already feeling the pinch, witnessing reduced sales despite overall economic upticks.
The second question is about how the nature of consumer demand has changed in the recovery. Due to the pandemic shift to online buying, Shanghai-based market intelligence firm China Skinny says it has never been easier to access data. This information informs most of the decisions of both newbies and established players in the market.
The problem, China Skinny notes, is that many brands are using the same data, which points to the same product innovations, using the same e-commerce and live streaming platforms, meaning there is little point of difference between products and brands.
The most sustainable brands — the ones commanding the greatest margins — are those with the brand equity that comes from connecting with consumers emotionally. Brands are realising this, helping swing communications and campaigns through a more emotional lens.
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The failure to grasp this shift is partly a factor undermining the restoration of high-end luxury goods sales. While they appeal emotionally, their target emotions are no longer as relevant or powerful in the Chinese market.
The lockdowns and health risks give consumers time to reflect on what is important to them. This is a powerful shift among older consumers with higher levels of discretionary income. There is a greater emphasis on work-life balance, so spending is redirected.
Chinese consumers openly talk online about their self-care lifestyle choices. This covers tourism experiences where the countryside is the driving factor. It’s drinking coffee in secluded parks and gardens or indulging in fine-dining experiences at restaurants. China Skinny notes that consumers increasingly want to connect with nature and the outdoors.
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This is evidenced by the boost in tourism numbers to Tibet and the remote provinces over recent festival periods. This shift was understandable when international travel was restricted due to Covid-19, but it has continued and expanded in the post-pandemic economy.
It is not as if the entire population is heading back to the countryside, but these changes in consumer preferences filter through many aspects of discretionary spending.
New and established brands grow their business when they understand these emotional drivers. This is not about patriotism, a driving force during the pandemic. This is a change towards a more discerning consumer who is less focused on the highs of department store shopping and shopping malls. The impact of e-commerce has changed the consumer space by giving domestic brands a space to establish themselves. It brings challenges, opportunities, slick advertising, and the inevitable regulation.
E-commerce is essential to reaching the new discretionary economy, but the rules are changing. We look at these changes next week.
Technical outlook for the Shanghai market
The Shanghai Index has failed to break above resistance near 3,080, although another test — perhaps successful — of this level is not off the cards. The better-than-expected GDP figures may push the market higher.
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What is clear is that the main upward impetus that developed from February has stalled. The open questions relate to consolidation or reversal. Currently, the answer favours consolidation between 3,000 and 3,080. The relationship in the Guppy Multiple Moving Average (GMMA) indicator supports this conclusion.
The key feature is the behaviour of the long-term group of averages in the GMMA, which guides investors’ behaviour. The wider the separation, the stronger the support for the prevailing trend. Changes in the trend are indicated when the long-term group begins to compress or narrow. This usually happens in response to the underlying stock or Index pullback.
The first pullback in the Shanghai Index was in March, and the long-term GMMA showed only a minor compression stumble. This indicated that investors used the pullback as a buying opportunity. They saw it as a temporary point of weakness in a strong trend, a classic entry strategy.
The current pullback shows the same relationship. It is slower, and the lower edge of the long-term GMMA will probably be tested several times.
However, the long-term GMMA currently remains well separated. It does not show evidence of compression in reaction to the market pullback. Again, this suggests that investors are steadily buying on this weakness in anticipation of the uptrend continuing.
Traders are more fickle and look for short-term profits. They are tracked using the short-term group of moving averages. These showed expansion and compression, indicating traders taking profits and re-entering the market. In both the recent retreats, the short-term GMMA has not touched the upper edge of the long-term GMMA. This is generally a bullish relationship.
This behaviour suggests that the current activity is consolidation rather than a change of trend behaviour. A change in trend remains possible, so the behaviour of the long-term GMMA will be closely watched for evidence of compression.
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 former national board member of the Australia-China Business Council. The writer owns China stock and index ETFs
